India’s largest e-commerce platform owned by US-based Walmart, Flipkart, is planning to open offline a.k.a brick-and-mortar grocery stores across India in order to tap the food retail industry in the country where 100 per cent Foreign Direct Investment (FDI) is allowed, said a Times of India report.
As per Indian FDI norms, foreign investors are not allowed to open retail stores in the country. However, in the food retail business, a foreign investor is allowed to open physical stores.
In India, Flipkart’s parent Walmart is allowed only to operate a business-to-business (B2B) wholesale segment in India due to the country’s FDI regulations and around 50-60% of Walmart’s global sales come from food and as the retail giant does not want left behind, its strategy of opening offline stores in India falls into Walmart’s way of organizing things for its business.
To recall, a Morgan Stanley report released earlier this year had suggested that Walmart could exit Flipkart, as the US retail firm does not see a long-term path to profitability. The new FDI rules for the e-commerce sector came into effect on February 1, this year and post that not just Flipkart’s but Amazon’s business too got impacted and saw a drop of around 25-35% in sales after having to re-arrange their seller entities where they held an equity stake.
Flipkart entering into the food retail segment is also seen as Walmart’s strategy to boost its cash-and-carry business, where revenue growth has been slow and Food accounts for two-thirds of India’s overall retail market, which is estimated to reach U$1.1 trillion by 2020 from USD 672 billion in 2017.
Amazon, which is global competitor of Walmart, has also committed to investing about $500 million in the food retail business through its food retail arm Amazon Retail India. It has bought a large stake in Aditya Birla Group’s food and grocery retail chain and is also in the process of acquiring Kishore Biyani-led Future retail which operates Easy Day and Big Bazaar chain in the country.
Meanwhile, home grown e-grocers, Grofers and Big Basket, have also reportedly gotten government nod to sell locally produced food items and hold inventory of the same.
On the other side, Mukesh Ambani-led Reliance is doing vice-versa (offline-to-online) by launching a new e-commerce platform in India, which will connect brick-and-mortar stores to online channel of Reliance Retail. To be rolled out initially for Gujarat retailers and store-owners, the upcoming e-commerce platform will enrich about 1.2 million small retailers and shopkeepers in Gujarat.
In August last year, a report supposedly said that Alibaba’s chairman Jack Ma had held talks with Mukesh Ambani, in July-2018 in Mumbai and discussed about plan to create a large omnichannel i.e. both online as well offline, retail entity through the proposed JV of RIL and Alibaba.
Among online grocery business, both Grofers and Bigbasket is envisaging omnichannel strategy. Gurgaon-based Grofers has recently raised $200 million in a fresh funding led by SoftBank Vision Fund, pushing the startup’s valuation to almost $1 billion. Prior to that, a month before BigBasket had raised fresh $40 million from CDC Group, the UK government’s development finance institution, at a valuation of $1.2 billion, that made it the latest entrant to India’s coveted unicorn club of startups.