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FDI in food retail will help online groceries to raise funding — but there’s a catch


First, the good news. Government’s decision to allow 100% foreign direct investments (FDI) in single brand retail is likely to give a big boost to online grocery startups such as Grofers and BigBasket as they can now raise funds more easily than before, according to the Times of India.

Now, the bad news: the government has allowed FDI only in food retail. Most startups in the grocery delivery segment also sell other household items such as soap, shampoos, cleaning agents etc. Hari Menon, CEO of Bigbasket, told the newspaper that they would even consider separating the food business from the rest of the portfolio to attract more investments from foreign players.

BigBasket raised $150 million in March in a round of funding led by Abraaj Group with participation from International Finance Corporation and Sands Capital. While Grofers raised $120 million in November 2015 in a round of funding from SoftBank, Russian entrepreneur Yuri Milner, with participation from existing investors Tiger Global and Sequoia Capital.

Downturn in online grocery: The online grocery delivery business has seen a downturn over the past few months. In April, PepperTap, which had raised $51.2 million, shut its grocery delivery business entirely and pivoted to logistics. This was shortly after the company closed operations in six cities.

Grofers shut down its services in nine cities because of low acceptance, while LocalBanya’s website has been down for over nine months now.

In February, Ola shut down its food and grocery delivery businesses Ola Cafe and Ola Store, while Flipkart shut down its grocery delivery service Nearby, five months after its launch. While the anomaly of the lot was Amazon India which launched a grocery delivery service app in Bangalore in February.

Walmart and Carrefour: Allowing 100% FDI in single brand retail would also enable multi-brand retailers such as WalMart and Carrerfour to setup a consumer-facing website to sell food items. But the products must be produced, manufactured or processed inside the country. Walmart in India has a B2B business and has 21 stores across Andhra Pradesh, Maharashtra, Punjab, Madhya Pradesh, Telangana, Uttar Pradesh and Chhattisgarh.

Image credit: Flickr user Lars P under CCBY.20

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