Amazon, the global e-commerce giant headquartered in Seattle, is taking a cautious approach amid the looming threat of a global economic recession. The company’s CEO, Andy Jassy, has acknowledged the need to trim expenses across various business segments in response to the current economic climate and the rapid expansion the company has witnessed over the past few years.
In line with this strategy, Amazon recently announced its decision to discontinue its food delivery service in India by the end of the year (1). This move marks Amazon’s exit from a market segment valued at $20 billion, which it entered less than three years ago.
The Exit from Amazon Food
On December 29, Amazon will cease its food delivery service in India, known as Amazon Food. It initially introduced food delivery in select areas of Bengaluru in May 2020. Over time, the service expanded to cover the entire city, establishing partnerships with new dining establishments. However, Amazon never aggressively promoted or marketed the platform.
Customers had expressed a desire to purchase ready-made meals from Amazon, especially considering the convenience and safety it offered during recent times. Research by Sanford C. Bernstein projected that the meal delivery market in India would reach $20 billion in just three years, with Zomato holding a competitive edge over Swiggy (2).
In a statement, Amazon expressed its commitment to supporting affected employees and partners during this transition, emphasizing its dedication to providing a superior online shopping experience (3).
A Part of Broader Restructuring
This announcement is part of a broader restructuring initiative Amazon is undertaking in India. Earlier, the company disclosed its decision to discontinue its edtech service, Amazon Academy, over the next year.
Despite investing over $6.5 billion in its Indian operations, Amazon faces stiff competition from Walmart’s Flipkart, particularly in smaller cities and towns (4). Analysts estimate Amazon’s gross merchandise value in India for 2021 to be between $18 billion and $20 billion, lagging behind Flipkart’s $23 billion.
Amazon has assured restaurant partners of fulfilling contractual obligations and supporting compliance-related issues until March 31, 2023. This strategic move aligns with the trend among technology companies to downsize in response to economic uncertainties (5).
The Closure of Amazon Academy
Amazon Academy, which offered coaching for competitive exams like the Joint Entrance Examination (JEE), is also set to be discontinued in a phased manner (6). The reason behind this decision remains undisclosed. The e-commerce giant has pledged to provide a full refund to enrolled students for the current academic term.
This decision coincides with the reopening of schools and coaching centers in India post-COVID-19 lockdowns, and it mirrors similar cost-cutting measures by other edtech companies, including Byju’s and Unacademy (7).
Amazon’s Struggles in India
Despite substantial investments, Amazon has faced challenges in turning a profit in India, with negative Ebitda margins ranging from 5-10 percent. The company’s global workforce has also experienced reductions, with layoffs affecting nearly three percent of corporate employees and less than one percent of its overall workforce worldwide.
These measures, including a halt in corporate hiring and the elimination of 80,000 global positions between April and September, reflect Amazon’s cautious approach in a volatile economic landscape (8).
In conclusion, Amazon’s decision to exit the food delivery and edtech segments in India underscores its commitment to prudent financial management amid global economic uncertainties. These strategic moves, while significant, reflect the company’s determination to focus on core strengths and navigate the challenges posed by a changing economic landscape.
FAQs
1. Why is Amazon discontinuing its food delivery service in India?
Amazon is discontinuing its food delivery service in India as part of its cost-cutting measures in response to the global economic slowdown. This move allows the company to focus on its core strengths.
2. What is the impact of Amazon’s exit from the food delivery market in India?
Amazon’s exit from the food delivery market, valued at $20 billion, signifies a strategic shift. It reflects the competitive landscape and the company’s focus on optimizing its operations.
3. Why is Amazon discontinuing its edtech service, Amazon Academy?
Amazon’s decision to discontinue Amazon Academy is part of its restructuring efforts in India. The exact reasons behind this move have not been disclosed.
4. How is Amazon faring in the Indian e-commerce market?
Despite significant investments, Amazon faces stiff competition from Flipkart in India’s e-commerce market. Analysts estimate lower gross merchandise value for Amazon compared to its rival.
5. What is the broader context of Amazon’s employee reductions globally?
Amazon’s reductions in its global workforce are a response to economic uncertainties and a proactive measure to manage costs in an uncertain macroeconomic environment.
