Business environment assignment: Case Analysis of Amazon’s Kirana Now

Question

Task: Prepare a well-researched business environment assignment discussing the macro environmental factors of a selected firm. Also, identify the various challenges encountered by the business and provide business strategies to overcome those challenges.

Answer

Task One
Discuss herein business environment assignment which macro environmental factors are affecting Amazon’s KiranaNow?
The new Amazon’s online KiranaNow store has been the new development in the Indian online grocery market that was launched in India in March. 2015. It is a high quality delivery service that aimed at bringing the kirana stores at every Indian home and make grocery shopping easy for the consumers. The new online delivery store launched two delivery models that consisted of delivery and scheduled delivery. However, the online retail like the Amazon’s KiranaNow is highly impacted by the external or macro business environment in which the store will operate. Based on the macro business environment the new online grocery store has built their business model. The macro business environment faced by Amazon’s KiranaNow store is the competitive environment of the retail industry (Mann and Byun 2011). This can be analyzed with the help of porter’s five forces that help traces the condition in the industry that add to the profitability and competitiveness of the retail industry.

Porter’s Five Forces Analysis
Porter’s five forces analysis done in this business environment assignment is an appropriate model to map the structure of the industry in which the business exists based on five competitive factors (as seen in figure 1). Each of the factors of porters show the extent of competitiveness that the firms the industry faces. Indian retail industry is huge and grows at a rate of 10% every year and online grocery segment only contribute $0.6 billion to the retail market in 2015.

Figure 1- Porter’s Five Forces Analysis
Sources- (Yadav and Sagar 2018)

Bargaining Power of the Buyers
The power that accrue to the buyers depends on the buyer to supplier ratio, purchase volumes and switching cost. It is evident herein business environment assignment that the bargaining power of buyers is moderate in the Indian grocery retails sector due to relatively less number of sellers selling similar service and zero switching cost to the consumers. There is relatively low competitive in the Indian online grocery sector with only few grocery e-store giving similar facilities. The online grocery retail is still a small sector in India with very less companies giving similar services. This is due to slow adoption of technology by retailers and consumers. However, there is some amount of power in the hands of buyers due to zero switching cost they incurs for switching from one online store to another or from online store to local Kirana store. the only large rival Amazon’s KiranaNow faces is Flipkart and thus the bargaining power of buyers are moderate in this sector with less option to choose from (Yadav and Sagar 2018). However, there are other online business also such as Big Basket and ZopNow and others that has grown in importance and has increased the chances of consumers to switch from one online grocery to another (Mann and Byun 2011). This makes the bargaining power of the buyers to be moderate in the online grocery stores in India.

Bargaining Power of the Suppliers (high)
The study prepared in this business environment assignment signifies that the bargaining power of the suppliers is impacted by the level of concentration of suppliers, the volume of supply, the kind of suppliers and threats from forward integration. Concentrated suppliers are more powerful and has more power in hand to bargain for the price (Badenhorst-Weiss and Weber 2016). The supplies of the online grocery retail sector of India is highly determined by the products received from the local retailers. Collaborating with correct local retailers is highly challenging because of high concentration of local suppliers. Moreover, getting supplies of products with high quality at low price becomes a problem due to lack of control on the products supplied by different retailers and high density of small suppliers. The supplies of online grocery stores involve merchandises that are perishable and need to deliver supplies in a fresh way. This put strains on the resources of the company in terms of capital and labor. Thus, the suppliers are at a higher bargaining power in the online grocery retail because getting supply from any supplier will cost a financial loss to the company (Yadav and Sagar 2018). Thus, few local suppliers in the grocery market make them attain a high hand on the online grocery retail sector.

In addition to this, the bargaining power of suppliers in online grocery retail sector is high due to people expertise challenge and technology challenges. This means that staffs in online retail needs high expertise and skills (Badenhorst-Weiss and Weber 2016). Thus, it is stated in the business environment assignment that the job cannot be performed by everyone and puts supply of skilled workers at high end of the bargaining power. Moreover, online retail needs supply of technological skills to be used in logistics. Thus, the bargaining power of people with such expertise and high management skill of information technology is high in the online grocery retail. The new Amazon’s KiranaNow store is facing similar challenge of high bargaining power of suppliers such as local grocery stores and high expertise employees.

Threat of Substitutes (high)
Threat from substitutes in the online grocery retail sector is high in India due to large number of substitute available in the market that sell similar grocery products at differentiated cost. The threat from substitutes is measured in terms of availability of substitutes in the market (Mkansi et al. 2011). The biggest substitute of online retail grocery sector in India are brick and mortar grocery market that sell similar products to the local people. In India, there are two types of brick and mortar grocery models in India such as traditional and modern. The traditional grocery retail shops are the one that comprise of kirana stores and pop stores and it was the primary revenue generator of grocery retailers. These traditional grocery stores is still the major source of purchase in many local communities and acts as a substitute for online grocery retailers. Moreover, there are modern retail channels as well that acts as a substitute to online grocery retailers such as department stores, hypermarkets and supermarkets. The consumers can easily purchase from these stores and get more payment options, wider range of products and discounts (JHA et al. 2015). Moreover, with zero switching cost the threat from substitute increases in online grocery retail. Amazon’s KiranaNow online grocery retail faces high substitute from India’s brick and mortar store models.

Intensity of Rivalry (moderate)
The intensity of rivalry in the Indian online grocery sector is moderate due to little number of rivals existing in the sector. The intensity of rivalry in an industry is determined by the growth and concentration of the industry. High rivalry means that the industry is less attractive to others and higher chances of profitability for existing firms. The Indian online grocery store is seen to face rivalry at moderate intensity because of existence of less number of competitors or similar firms. The biggest players in this sector of India are Flipkart, Big Basket and ZopNow that takes up maximum of the market share (Dul?i? et al. 2012). Other online grocery stores were present such as PepperTap and LocalBanya, however, they failed to get market access or capture demand. The low switching cost of the customers has been the major factor for moderate rivalry among the firms where consumers can easily shift their demand for grocery from one online store to another based on time, delivery, quality, service and others. However, the rivalry in the online grocery sector is seen to increase by 2021 with an increase in online segment rising by 30 to 40 percent (JHA et al. 2015). This shows that rivalry among firms in online grocery retail is not less and will slowly be high with more firms being attracted to the industry due to profitability. Amazon’s KiranaNow online store will face a moderate to high threat from rivalry over time in this industry.

Threat from New Entrants (low)
The online grocery retail sector faces low threat from new entrants in the market due to various factors that creates high barriers for new companies to enter the market. One of the reasons is that entering online grocery retail industry needs high investment in capital and cost in marketing. The online retail sector is highly a competitive industry where large players such as Amazon, Flipkart, and BigBasket take maximum market share. Thus, it becomes difficult for the new players to enter the industry and easily take up market share and recognition similar to the key players. Moreover, it is seen that the investment cost in hiring technological experts and forming a website and others is high in the industry. In addition to this, various regulatory framework further act as a barrier to new entry on the online retail. The income tax Act 1961 is a policy that applies to the Indian e-commerce sector. For the companies entering into this sector it becomes important to comply with the tax policies. This further reduces the treat from new entrant in the online grocery sector. Moreover, for successfully implementing the online grocery delivery it is important for new entrant to form collaboration with local suppliers and partner stores. This further puts monetary pressure on the firms that plan to enter the market and restrict them from entering due to the fear of sustaining in the market (Dul?i? et al. 2012). Thus, Amazon’s KiranaNow is facing low threat from new entrant due to the market share it owns in the online retail sector and due to its competitive strengths.

Task Two
What are the challenges faced by KiranaNow identified in the present context of business environment assignment?
Amazon is facing challenges in the Indian market with the rising competition it is facing in the online grocery sector. Amazon entered India due to relatively low competition and increasing acceptance of digital platform for purchase. However, over time, the situation has changed dramatically and there has been an increase in competitive pressure for amazon in online retail sector. Amazon is facing increased challenge from the strategic deals given by two of its competitors in the market such as Flipkart in the Indian market and Walmart in global market (Yadav and Sagar 2018). Moreover, the business model used by KiranaNow was not tested by for sustainability and further raises competitive challenges for Amazon. Moreover, the brick and mortar store is still growing and is expected to grow at a compound annual rate of 11% from 2015 and 2020. Thus, growth of traditional and modern grocery retailers is yet another cause of challenge that Amazon is facing in attracting customers in the Indian market for its new online KiranaNow. The competitors of Kirana Now grocery stores follows business models, locations and services that separate them from other similar online grocery stores. However, the readings used to prepare the business environment assignment mentions that KiranaNow is facing challenges in some of these areas such as merchandising problem such as quality issues and poor control on quality of products being supplied to customers. Moreover, there are high attrition rate that demanded effective hiring and training process for service improvement. Amazon is also facing technological problem in collaborating with the small retailers (JHA et al. 2015). Moreover, Amazon is also facing challenge from minimum preference from the consumers to buy groceries online that further makes KiranaNow face competitive pressure. This shows that there are number of competitive challenges Amazon is facing in the online grocery retail market and needs improvement.

Figure 1- Challenges faced by KiranaNow
Source- (JHA et al. 2015)

Strategies to Overcome the Challenges
With the huge challenges as identified in the above context of business environment assignment, it is being important for Amazon to develop new strategies or implement improvement in strategies it overcome the challenges and attain success in the online grocery market.

• Firstly, Amazon should implement an effective partnership strategy where it should form partnership with known and good local retailers for the supply to ensure that quality is not hampered. This makes it important to keep a close control on the quality of the products.
• Secondly, Amazon should change its supplier’s strategy to hyperlocal delivery to inventory based model to maintain a control over quality of delivery.
• Thirdly, Amazon should change its return policy for attracting customers such as the customers should also be allowed to return the product even after acceptance at doorstep and without any damage. This will help in winning trust of the customers by better valuing their money and time.
• Fourthly, Amazon should adopt strategy of distribution centers where certain convenient food and packed items can be stored in freezer and other processes to increase availability of the products.
• Fifthly, form a separate company owned delivery team to deliver the product to the customers at doorstep and avoid delivery by local kirana or stores (Yadav and Sagar 2018). This will help maintain a control on the delivery processes and delays.
• Lastly, Amazon should plan discounts in its KiranaNow as branding strategy so that the customers get grocery products at low price than local stores and prefer to purchase from online grocery. ?

References
Badenhorst-Weiss, J.A. and Weber, A.N., 2016. Time-based competition as a competitive strategy for online grocery retailers. Journal of Contemporary Management, 13(1), pp.433-460.

Dul?i?, Ž., Gnjidi?, V. and Alfirevi?, N., 2012. From five competitive forces to five collaborative forces: revised view on industry structure-firm interrelationship. Procedia-Social and Behavioral Sciences, 58, pp.1077-1084.

JHA, A.J., JAIN, V., CHOWDHRY, V. and BOSE, I., 2015. Transforming the traditional Indian retailer.

Mann, M.K. and Byun, S.E., 2011. Assessment of five competitive forces of the Indian apparel retail industry: entry and expansion strategies for foreign retailers. Business environment assignmentJournal of Textile and Apparel, Technology and Management, 7(2).

Mkansi, M., Qi, B. and Green, G., 2011. A literature review on management of supply and distribution in the UK Online grocery retailing: a resource-based view.

Yadav, N. and Sagar, M., 2018. Amazon India’s “Apni Dukaan”: branding strategy. Emerald Emerging Markets Case Studies.