The Government of India is mulling to allow foreign direct investment (FDI) in online retailing of food products. Discussions regarding expansion of definition of food to include grocery also took place at a recent meeting of senior Government officials and industry officials.
The objective of the budget proposal for foreign investment in food retail was primarily to benefit the food processing industry and farmers. However, food earns one of the lowest margins for retailers, an issue that has been plaguing the industry.
Within online, fresh produce accounts for almost 20% for BigBasket and as much as 30% for Grofers, while packaged food products contribute another 35-40% of total sales (Bigbasket and Grofers are among the largest food e-tailers in India). While selling food products would help farmers and small business, retailers will have to look at other groceries and household products to earn profit and remain sustainable.
Last week, the Department of Industrial Policy and Promotion (DIPP) notified that 100% FDI is allowed only in Business to Business (B2B) e-commerce marketplaces and not inventory-based models, where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.
It is being speculated that this new policy of 100% FDI in B2B e-commerce marketplaces could now pave the way for e-commerce grocers, especially those that have inventory-based models such as BigBasket.
The e-tailers seem enthusiastic about the new policy and awaiting clarifications on finer details.
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