INDIA – Amazon Inc., the world’s largest e-commerce company, has shied away from taking prospects in the food delivery business in India, confirming that it will shut down Amazon Food by year’s end, which it launched at the peak of the pandemic in May of 2020.
Amazon launched Amazon Food less than three years ago, as a trial phase in parts of Bengaluru, and later expanded the service across the city, tying up with additional restaurants, but it never heavily promoted or marketed the platform.
During the launch of the e-commerce platform, the company said: “customers have been telling us for some time that they would like to order prepared meals on Amazon in addition to shopping for all other essentials. This is particularly relevant in present times as they stay home safe.”
However, during the call of quits to the Indian market, a company spokesperson told Reuters: “As part of our annual operating planning review process, we have decided to discontinue Amazon Food.”
“We don’t take these decisions lightly. We are discontinuing these programs in a phased manner to take care of current customers and partners.”
The Economic Times earlier reported that the business would be discontinued from Dec. 29 onwards, citing a communication from the company to its restaurant partners.
India’s food delivery market is estimated to be worth $20 billion in three years, according to Sanford C. Bernstein. Zomato, publicly listed, currently maintains a small lead in the market against rival Swiggy, backed by SoftBank, Prosus Ventures, and Invesco.
After the announcement by Amazon, Zomato shares went up as investors are optimistic about growth post-Amazon shuts down the food-delivery business.
The announcement is part of Amazon’s broader restructuring in India announced earlier this week. The company is also shutting down its EdTech business, Amazon Academy, as part of its cost-cutting measures.
Earlier this month, it announced it was laying off over 10,000 employees due to uncertain macroeconomic conditions.
Indian food delivery platforms like Zomato are struggling to make financial sense, considering that there is high competition in the market. Each company is trying to win and sustain customers by offering heavy discounts.
Several venture capital firms say they are struggling to understand how food delivery firms would ever turn a profit in India.
Unlike Western markets such as the US, where the value of each delivery item is about US$33, in India, a similar item carries a price tag of US$4, according to estimates by Bangalore-based research firm RedSeer.
“The problem is that there are very few people in India who can afford to place an order from a food delivery firm each day,” said Anand Lunia, a venture capitalist at India Quotient.
To drive the demand, food delivery firms need to bring down the price to a level that matches what most working-class Indians spend on their lunch, which is less than US$2, he said.
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