Written By Ratna Bhushan & Chaitali Chakravarty, ET Bureau
NEW DELHI: Top Indian retailers are furious at Amazon over what they see as ambush marketing — inside their own stores no less. Amazon has said the exercise was part of normal promotional activities.
The India arm of the American online giant bundled its gift coupons with products of ITC, Nestle and Coca-Cola being sold on the shelves of large organised retail chains such as Big Bazaar, Hyper-City, Star Bazaar, D-Mart, Walmart-owned Best Price Modern Wholesale, Big-Basket and others. Not anymore it seems — the brick-and-mortar retailers are removing the items as they see this as a move by Amazon to acquire their customers.
“We will not allow ambush marketing at any cost,” said Kishore Biyani, founder of Future Group, the country’s largest brick-and-mortar retail network. “We have started removing such products from the shelves and told brands not to supply us packs that have any promotional tie-up with a rival retailer.”
Packs of brands such as ITC’s Yippee Noodles, Nestle’s KitKat chocolate and Coca-Cola’s Sprite and Fanta soft drinks are among the brands that are, or were, being retailed at offline stores along with Amazon gift coupons. D-Mart chief executive Neville Noronha described the move as being “below the belt.” He added: “Principally, the brands should have spoken to us. Amazon is using us as a channel to acquire customers without any agreement with us. We’ve communicated our point of view to the brands.”
Amazon founder Jeff Bezos has pledged to pump $5 billion into India and has said it will continue to invest and grow in the country. It’s now focused on selling food and grocery online with deals and promotions and has earmarked $500 million for this after the government allowed foreign direct investment in the retailing of such items, provided they are made and packaged in India.
The marketplace said the exercise was part of its promotion. “Amazon regularly runs various kinds of promotional activities with sellers and brand partners in keeping with its vision to make online commerce a part of everyday life,” a company spokesperson said in an email.
FMCG Cos Neutral
The consumer goods companies adopted a neutral tone. Nestle said: “We value our relationship with all our trade partners and collaborate with them for our promotions. In the recent KitKat promotion, there are some operational issues and we are in touch with our partners.”
A spokesperson for ITC, which makes a host of packaged foods and grocery products including biscuits, noodles, frozen foods, soaps and deodorants, said: “Like every FMCG (fast-moving consumer goods) company, we run different consumer promotion schemes across multiple products from time to time to benefit consumers and promote the sale of our offerings. Currently, there are 38 promotion schemes across multiple products.” There was no response from Coca-Cola.
Rakesh Biyani, joint managing director of Future Retail, said it was disappointing that large companies like Amazon were directly incentivising consumers with currency/money, which is equivalent to indirect participation in pricing. He said such marketplaces aren’t allowed to do this. “The act of promoting a specific distribution channel through a cash incentive on products sold through traditional distribution is not good for the growth of the industry,” he said. “Small traders and retailers will be significantly impacted from a promotion, which is incentivising consumers to shop in a competing channel.”
Analysts said the episode reflected the intense competition.
Not a new practice
Globally, companies have long engaged in cross-channel promotions and ambush marketing, consulting firm Third Eyesight chief executive Devangshu Dutta said. Such practices may not be unethical unless specified in the contract.
“Having said that, offline retailers are fully within their rights to return the packs they take objection to,” he said. “Finally, smaller retailers which contribute the much bigger segment of sales may not be able to take a stand which the bigger, organised ones are taking.”
This is not the first time Amazon and brick-and-mortar retailers have been engaged in a bitter battle over discounting and pricing strategies.
Large e-commerce players, which are known to burn cash to acquire customers, have been frequently alleged to indulge in predatory pricing by offline retailers. In the middle of last year, the government had issued guidelines on marketplaces aimed at putting an end to deep discounts offered by online platforms, a move that brick-and-mortar retailers said levelled the playing field.
While online penetration of food and grocery penetration is still less than 1%, Morgan Stanley expects this to become the fastest-growing online category, expanding at a compounded annual growth rate of 141% by 2020 and contributing $15 billion, or12.5%, of overall retail sales.