After the Walmart acquisition, here’s what’s in store from Flipkart

After the Walmart acquisition, here’s what’s in store from Flipkart

Nearly a decade after entering India and failing to make any waves due to resistance from the government, Walmart is making a renewed push in the country by focussing on it’s fast growing e-commerce market. The world’s largest retailer is taking a 77% stake in Flipkart, an Indian e-commerce giant, by buying $14 billion of stock from it’s investors and pumping in $2 billion of fresh funds.

With the deal inked, now the work begins for Walmart. In addition to boosting Flipkart’s logistics and supply chain network, it has a number of complementary plans for the Indian market. According to a press release on its website, Walmart plans to create jobs, support small businesses and increase farmer incomes. Here’s how things should go from here.

Direct and local procurement of groceries

Flipkart can’t focus on clothes and electronics forever. And Walmart derives half its global sales from groceries. Like Amazon and the Alibaba-funded BigBasket, the US retailer has big plans in the online groceries space in India - a segment which is widely predicted to drive India’s e-commerce growth.

Currently, farm-to-table supply chains in India suffer from wastage and a lack of investment. Walmart is expected to source fresh groceries directly from farmers and small businesses and minimise wastage by adding a cold storage component to its supply chains. This could also include investments in collection centres, and quality control facilities.

In doing so, Walmart will help farmers cater to a wider customer base. It already runs a number of market readiness projects in India centred on back-end infrastructure support, increasing access to credit for farmers and training on international food standards.

Making ‘kirana’ stores go digital

In its press release, Walmart said it would, “partner with kirana owners and members to help modernize their retail practices and adopt digital payment technologies”. Ekart, Flipkart’s supply chain arm, is already sourcing and distributing products through thousands of kiranas. Kiranas refer to small mom-and-pop neighbourhood retail shops. Walmart already has ties with kiranas through its Best Price wholesale business in India, wherein these vendors act as resellers.

In addition to integrating more of these stores and small retailers into Flipkart’s supply chain network, Walmart will likely get them to start using Flipkart's PhonePe digital payments network to accept and disburse payments offline. The payments app crossed 40 million transfers on the Unified Payments Interface in April alone.

But it won’t come cheap

With its $16 billion investment, Walmart is spending a lot more money in India than Amazon, Flipkart’s nearest competitor in the Indian online shopping market. In 2016, Amazon said it would increase its planned investment in India to $5 billion in order to close the market gap with Flipkart. According to news reports earlier this week, it has pumped an additional $386 million (₹26 billion) into its Indian unit this year.

The war over who can offer deeper discounts will affect both firms and further investments will likely be necessary. Flipkart’s parent reported a net loss of ₹87.7 billion for the last fiscal year. In all probability, Flipkart will continue to report losses in the near term, something that Walmart is probably okay with since it’s in it for the long haul.

Should the acquisition bear fruit, Walmart could even sell a portion of its stake in Flipkart in the future through an IPO. However, it should retain a majority holding.

Concurrently, Walmart will continue to operate and more importantly, grow, its wholesale business in India. It plans to add 50 cash-and-carry stores within the next five years, taking its total Best Price store count to 71.