Flipkart-walmart deal impact: Grocery retail to become Rs 10,000-crore business in two years, say experts

Ajay Srinivasan, director, CRISIL Research, said: “The deal indicates the attractiveness of India’s consumption market for global majors. With Walmart acquiring stake in Flipkart, we expect enhanced thrust on the online grocery segment. We expect online grocery to be the fastest growing segment in the e-retail space, growing at 65-70 per cent to touch Rs 10,000 crore in revenues by fiscal 2020.”

“Walmart is already present in the B2B cash and carry business through 21 Best Price stores. The key for the combined entity will be their ability to scale up from these levels considering that current regulations permit only 49 per cent FDI in grocery physical retailing,” Edelweiss Research said.

Kotak group said Walmart’s global expertise in sourcing products cheaply, and focus on staples (56 per cent of its FY18 revenues comprised sales of food and grocery) “leads us to believe that it will invest significantly in improving sourcing of food items direct from farms, and build supporting infrastructure in the form of transport and warehousing facilities”.

However, smaller retail players have expressed apprehension over the deal. “Smaller players constantly face a problem of scaling up their operations. However, this does not mean that they will be forced to exit. The smaller players in many cases are more agile and open to new business models. They should concentrate on specialisation within their domains to build up a valuable cache of users…,” said Adrian Lee, research director, Gartner.

To scale up the business and achieve the next leg of growth, Walmart and Flipkart have planned to support 5-6 million kirana stores through modernisation of retail practices as well as digital and cashless transactions for sustainable growth. Success will however hinge on how both the entities integrate their crucial business practices and policies.

“This is an extension of Walmart’s global expansion strategy. This should not be observed without mention to Alibaba Group’s intent to become the third player in India. I see the competition getting more aggressive as Amazon counteroffers Walmart for a stake in Flipkart. Both have their own sizeable cash reserves, and the outcome in India will determine the access to its growing middle class consumers for dominance, outside of the US,” Lee said.

Analysts said online and offline partnerships are likely to get a fillip but online discounting may not necessarily increase as Walmart may drive private labels rather than focus only on GMV (gross merchandise volume). “FMCG companies are likely to benefit as Walmart’s expertise lies in hypermarkets/ grocery retailing (plans to tie up with kirana players). Also, subject to regulations, there is likelihood of Walmart’s cash & carry business being integrated with Flipkart at some point in time,” Edelweiss said.

Besides core product offerings such as smartphones, electronics, apparel and home improvement goods, Amazon has strengthened its hold over the urban Indian consumer by offering Prime (services and video). Flipkart’s challenge would be to induce its existing customers to transact more, and widen its customer base, Kotak said.

Traders’ body seeks ban

Mumbai: A day after the Walmart-Flipkart deal, a traders’ body said it will move the government or an appropriate authority to seek a ban on the deal till it forms a national policy and a regulatory body for e-ecommerce in India.

The Confederation of All India Traders (CAIT) said: “It’s not an ordinary deal between two companies but certain important issues concerning FDI policy, data security, competition, unfair practices etc. are involved. Since the deal has a greater ramification for India’s retail trade, a closer scrutiny is certainly warranted.” —ENS