Homegrown e-commerce marketplace Flipkart could get a big boost in the upcoming online grocery space as well as gain access to the offline retail market in India if a proposed deal with US retail giant Walmart goes through.
Walmart was in the final stages of closing a deal to acquire 15-20 per cent stake in Flipkart, reported The Economic Times. The report did not mention the valuation at which Walmart would buy Flipkart shares, but it did mention that the transaction could include primary and secondary share sales.
The deal comes at a time when Flipkart is looking to heavily invest in growing its grocery delivery capabilities to take on rival Amazon in India. Flipkart has launched pilots to sell groceries on its platform in six Indian cities so far and mulls expanding that number in the near future.
Globally, online sale of groceries helps retailers win repeat customers, who end up getting habituated in buying all their supplies online. While India’s e-commerce sector is growing fast, getting customers to purchase products more often on their platforms is something both Amazon and Flipkart have said they are vying to do.
Flipkart could look at Walmart to help it with sourcing of fresh produce, something which the US retailer has already begun doing in India. Globally as well, Walmart is among the largest procurer of fresh produce and daily-use items, and it is this knowledge that could help Flipkart immensely.
Moreover, as Amazon begins pushing offline in its home market i.e US, it is only a matter of time before the company perfects its people-less stores and other retail concepts, and rolls them out across the globe. Here too, Walmart’s immense experience in offline retail along with a commitment to open 50 retail stores in India by 2021 could be valuable for Flipkart.
The Economic Times report highlights that the deal could be symbiotic for both Walmart and Flipkart, meaning, it would just not be cash infusion that Walmart would make for Flipkart to combat Amazon. The deal could go far beyond that, with both players using their expertise to build a more efficient model and curb the growth of Amazon in India.
Consequently, winning in the online grocery space will also require massive amounts of cash for which Flipkart has already brought on-board investors with large appetites such as SoftBank and Tencent. Experts say that margins in the business are extremely thin and going by the track record of e-commerce players, they are bound to subsidise grocery sales to win customers over.
This bet could potentially pay off if Indian customers begin online shopping more often, up from one-two purchases a year to multiple purchases a month. Therefore, investing in grocery could be a risk worth taking for e-commerce companies, as the thesis that customers buying groceries online tend to also make much more significant purchases on the same platforms is being proven by Amazon in the US and Europe.