CyberMedia Research, the market research arm of the CyberMedia publishing group, has predicted that the $16 bln acquisition of Flipkart by WalMart, the world’s largest retailer, will bring far-reaching changes in India’s retail sector, both online and offline. The news of the deal has already led to some response from offline retail players such as Future Group.
“The dynamics of the online and offline retail will never be the same post the Walmart-Flipkart deal,” CMR said, adding that the deal will pave the way for a “new growth story for organized retail” in India.
With the massive presence of two of the world’s biggest retailers in the country’s retail sector via online outlets, pointed out CMR, it would make less and less sense for the Indian government to continue to block them from setting up physical outlets.
“The Indian Government would have to relook, and consider opening up foreign direct investment in multi-brand retail,” it said.
The government of India has been loathe to allow big international groups to start super market chains in India, fearing that do so will drive customers away from small, mom-and-pop shops.
On the other hand, big Indian comglomerates, such as Future Group, Aditya Birla Group, Tata Group and Reliance Industries, are already present in the space. However, they have not had as disastrous an impact on small retail shops as feared.
Despite this, super markets and hyper markets continue to be prohibited territory to international companies.
CMR said the government should seriously consider allowing existing offline retail giants to collaborate with big global retailers so as to enable them to withstand competition from the online operations of WalMart and Amazon in India.
“The intent should be to benefit the offline market in accessing capital and enabling homegrown conglomerates such as Tata Group to bring new global partners into India, and, global offline retail majors, such as Carrefour Group,” it said.
As for the deal itself, said CMR, the merger will open up large avenues for synergy and cooperation between WalMart’s existing wholesale business in India, and Flipkart’s online operations.
WalMart “will be able to embrace a Phygital approach in India,” it said.
The US company will be able to tap its current 21 stores in India for the online market and as warehouse locations for delivery, complementing Flipkart’s network.
“Given its plan to add 50 new stores in India over the next 4-5 years, Walmart and Flipkart would be in the pole position to potentially win the race against Amazon,” it said.
Besides the logistics and delivery network of Flipkart, WalMart will also get a vast consumer base with the acquisition, it pointed out.
On the other side, Flipkart too would benefit from Walmart’s know-how and expertise in retail infrastructure management, marketing, supply chain and logistics, it added.
This would help Flipkart “deliver greater value to discount hungry consumers,” it said.
Another dimension to the deal are the tens of thousands of small retailers for whom WalMart acts as a wholesaler. This relationship could also get a boost with the Flipkart acquisition, said CMR.
The immediate impact of the deal would be felt in online grocery, said CMR.
At present, online grocery is only a tiny percentage of the overall online retail market in India, even though grocery accounts for the lion’s share of offline retail.
The primary encumbrance in selling grocery through the online channel is poor logistics.
Online delivery of grocery items, being sensitive to poor handling and delivery schedules, is currently restricted to big cities like Mumbai and Bangalore, where delivery time-lines can be strictly adhered to.
“Online groceries would be where Walmart-Flipkart and Amazon would start focusing going forward,” CMR said.
“While Amazon has AmazonNow, Flipkart would like to tap Walmart’s supply chain expertise in building up its Grocery offerings.
“Given the deep pockets that both Walmart and Amazon have, they will commit to further investments to command the market.
“This upcoming battle, it turn, puts a big question market to the future of companies, such as BigBasket. Would they be able to sustain themselves and compete against Walmart on reach as well as price,” it asked.