With Walmart, Flipkart Will Take The Battle For Indian Retail To Households
With the impending deal, Flipkart hopes to leverage Walmart’s capabilities in the household segment, a chunk Amazon will be aggressively pursuing. This will change the retail scene altogether with both the e-commerce rivals adopting offline formats, capturing 80% of the market as they broaden their product offerings. This will make survival for non-niche players like Snapdeal difficult.
Soon after the announcement of a possible deal between Flipkart and Walmart, Amazon India head Amit Agarwal, in an interview with Reuters, said that the online retail giant expects groceries and household products to account for over fifty per cent of its business in India in the next five years.
That’s quite a revelation indicating where the battle for the Indian retail market will be staged. Experts say, the big race will no longer be about categories, but about acquiring segments and the primary among them will be household where purchases are more frequent. About 80% of grocery purchase is repeat. With the impending deal, Flipkart – so far category heavy, that too in smart phones and fashion only – hopes to leverage capabilities of Walmart in food, grocery and household segment.
Senior forecast analyst at Forrester Research, Satish Meena says contrary to the general notion that the deal between Flipkart and Walmart is about the former’s access to funds, it is actually about Walmart’s expertise in household segments.
“If it was only about money Flipkart already had the backing of Softbank. This partnership with Walmart is all about insights onto multiple domains – sourcing, supply chain management, or warehouses.”
As of now Flipkart’s gross merchandise value (GMV) mainly hovers around two categories - smart phones and fashion – both of which are not frequent purchases. The homegrown ecommerce player has not been able to expand to other categories successfully so far. After a failed attempt in 2015 with the launch of its grocery delivery service app Nearby, it made a re-attempt to enter the segment with its Supermart mobile app catering to select customers in Bengaluru.
But this is nothing compared to the scale and capability with which Amazon Now – the service that promises delivery in two hours currently available in Delhi, Mumbai, Hyderabad and Bangalore – has been launched. With about 15 warehouses, Amazon Now has 56 fulfilment centres with specialised facilities such as cold storages for perishable products.
With Walmart, Flipkart can leverage the American retail giant’s warehousing and last mile delivery capacity. While the last mile delivery may remain with Flipkart, it will have the technology backing of Walmart Labs.
In addition, Flipkart is also looking at accessing Walmart’s sellers and manufacturers in the household segment, says Meena. They can enhance the breadth of product offering and rejig the Bengaluru based retailer’s focus from fulfilling the needs of any one customer to an entire household.
“The main difference between Flipkart and Amazon is, while Flipkart focuses on categories, Amazon aims at controlling the households so it can become the default retailer,” he adds.
This focus on household may lead the e-commerce players to adopt multiple retail formats. Globally – household products especially grocery is a combination of online and offline working together.
Meena predicts in the next one year Flipkart, and Amazon – may be by this year - may have offline presence because groceries are a difficult category to manage online only. He adds that Walmart’s interest in taking majority stake (over 51%) in Flipkart could be mainly because they are eyeing offline stores and a higher stake would give them control over the operations.
In the near term, this might be a good news for Indian sellers and manufacturers. They can still choose between two platforms – a possibility that would have died out had the deal been between Amazon and Flipkart monopolising the entire market. What’s more, both these retail giants might even start signing exclusive deals with sellers and manufacturers, especially in food and grocery segments.
However, experts feel ultimately all of them – Flipkart, Walmart and Amazon will all aim at owning private labels and in the process move to contracting manufacturers. Sellers will, then, have to figure out how to stay relevant.
And in this battle which, if the deal gets through, in reality will be between Walmart and Amazon, vanilla smaller e-commerce players might find it difficult to survive. Amazon and Flipkart as of now capture almost 80% of the market, the rest 20% will be the playground of e-commerce retailers in niche areas like furniture, beauty and cosmetics, or women specific products. “These categories need specific kind of expertise and have a dedicated buyer base. But for companies such as Snapdeal, it will be very unlikely anyone will back them as things change,” adds Meena.
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