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FOOD E-TAILERS



Keeping at par with the recent budget proposals for the financial year 2016-17 in the infrastructure and investment sector, wherein 100% Foreign Direct Investment (“FDI”) is allowed through the Foreign Institutional Promotion Board (“FIPB”) in the marketing of food products[1], provided that such items are sources and processed in India itself, there are considerable talks on affording the same opportunity to Food E-tailers.

The intention/ objective of permitting such FDI is to increase the food consumption percentage, thereby giving the much needed boost to the food processing industry and farmers, increasing employment in the sector and strengthening the bond between farmer and folk by fetching better price for the product, as the current profit margins from the sale of food is negligible. Therefore the urgent need to bring about parity between investments for online and offline food retailers.

Food E-tailers are an online platform for retailing of food. It is considered as the latest medium to purchase food and food products, including groceries, through the electronic medium, as opposed to the traditional method of in store shopping. A majority of the Food E-tailers have adopted the Inventory-based model of e-commerce, wherein the inventory of goods and services is owned by the e-commerce entity and is sold to the consumers directly. FDI is currently not permitted in this segment. Some examples of permissible FDI in different e-commerce models are as below[2]:-

S.No
E-Commerce model
Permitted FDI
1.       
Cash and carry wholesale trading/ wholesale: B2B
100 FDI- automatic route
2.       
E-Commerce activities: B2B (not engaged in retail trade)
100% FDI- automatic route
3.       
Inventory-based model of e-commerce: B2C
Not Permitted
4.       
Marketplace-based model: 
100% FDI- automatic route
5.       
Single Brand product retail
Upto 49%- approval route
6.       
Single-Brand product retail: over 51% FDI: B2C
After 49%- approval route
7.       
Single-Brand product retail: Upto 49% FDI: B2C
Upto 49%- approval route
8.       
Multi-Brand retail trading:
Upto 51%- approval route

Experts in the field have pitched the idea of including grocery and personal care items retailed within the ambit of the definition “Food Product Marketing”, as food and grocery accounts for a majority, roughly transacting/ amounting to 50% of the of the retail basket.

The online food retail market is at a very nascent stage, and its penetration in the market is still less than 1%, however experts like Morgan Stanley have suggested a positive and upward trend, and expect the food and grocery segment to become one of the fastest growing segments, expanding at a compounded rate of 141% by 2020, and contributing $15 billion or 12.5% of overall global sales[3].
This expectation is substantiated, seeing that the online food E-tailers have been on the rise, with the emergence of budding etailers like BigBasket, Grofers, Reliance Fresh Direct, Godrej Nature Basket, PepperTap and the like.

However no final view has been taken up on the matter, and the stand taken by the Government remains to be seen. If such FDI is indeed allowed, the E-tailer sector will become more sustainable and may soon become an essential driver of the economy. Considering that food E-tailer, BigBasket has raised $220 million from foreign investors, further clarification by the Government in this regard will further improve and advance the sector.

Another news doings the rounds is the registration of food E-tailers with the Food Safety and Standards Authority of India (“FSSAI”). The FSSAI is very eager on bringing within its jurisdiction Food E-tailers, by way of mandatory registration under the food Standards and Safety Act, 2006 (“FSS Act”). Officials of the FSSAI have recently had a meeting with the top E-tailers of the country to discuss the registration procedure. It seems that soon enough draft regulation will be published to regulate such E-tailers, retailing in food. The purpose of such registration is to ensure the quality of food products and services of such E-tailers.

It has also been stated that E-tailers dealing in food and food products, without registration with the FSSAI would be “illegal” and appropriate action as per the FSS Act for violation, would be undertaken[4].




[1] Official Website of the Finance Ministry: http://finmin.nic.in/vikaskabudget/: Last Visited: 20/04/2016
[2] Official Website of Live Mint: http://www.livemint.com/Industry/rSHf5859UtMYapT6ohi93M/The-retail-conundrum.html: Last visited 20/04/2016
[3] Official Economic Times Website: http://articles.economictimes.indiatimes.com/2016-04-05/news/72070374_1_food-retail-food-products-food-processing-industry: Last visited 20/04/2016
[4] Official Website of the Times of India: http://timesofindia.indiatimes.com/city/delhi/FSSAI-registration-must-for-e-tailers-selling-food-products/articleshow/51714800.cms ; Last visited: 20/04/2016 

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