Amazon has announced that it is shutting down its food delivery service, called Amazon Food, in India. The service was only launched some two years ago, delivering ready cooked meals to select parts of Bangalore. At the time the launch raised eyebrows due to the fact that rivals had started scaling back, and Uber Eats had left the market entirely.
India is considered to be a key market for Amazon in general, and the company has spent over $6.5 billion in building the overall online retail business. But despite that, it never fully committed to the food delivery operation and failed to make any heavy promotion or marketing moves.
This, and the difficulty Amazon is having fighting off Wamart’s Flipkart online retail service, seemed to lead to the inevitable closure. Food delivery in India has also been dogged by low operating margins, since customers tend not to have as much invested in ordering meals in their homes as in other geographies.
Two other incumbents, Swiggy and Zomato, which bought out Uber Eats, have also been struggling to ramp up their businesses to a profitable status. The pandemic hit both companies hard, as did the smaller order value, which kept margin potential low. As a result the two companies have had to continue subsidizing the cost of food items on the menu, which obviously is not a solid long term strategy.
Both companies have had to reduce costs over the past two years, despite having raised a total of $2 billion between them. Meanwhile the Amazon retail machine has surprisingly failed to gain a foothold in some of the smaller Indian towns and cities. In fact the overall story has been one of a company struggling to maintain momentum in a country where the incumbent rivals are firmly entrenched.
India Is A Tough Market For Amazon
Regulatory obstacles for the American giant have also been a factor. Many of Amazon’s core strengths have been regulated away, and the company has not been able to find a way around the restrictions.
This overall weakness may be part of the reason why a relatively small sector like food delivery has been cut. Amazon Academy, the company’s online learning portal, is also scheduled for closure – although not until later next year.
These moves are widely perceived as part of the company’s overall cost cutting exercise across the globe. The news several weeks ago that Amazon was cutting 10,000 jobs was widely reported in the country.
It remains to be seen just how safe the company’s other two delivery services will be over the coming months. Amazon Prime Now and Amazon Fresh must surely be key targets in any further cost cutting moves in the country.
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