Walmart’s investment in Flipkart adds fuel to the fire of India’s eCommerce market

After much speculation, Walmart has become the biggest shareholder in India’s eCommerce retailer Flipkart. Much, no doubt, to the annoyance of Amazon, who tried to scupper the bid. The biggest eCommerce deal in history will certainly ignite an already fiercely burning competitive landscape in India.

More than simply planting a flag in India
Walmart will invest $16 billion for a 77% initial stake, with the rest of the business held by Flipkart co-founder Binny Bansal, Tencent, Tiger Global, and Microsoft. The stake in Flipkart significantly expands Walmart’s presence in a rapidly-changing, high-potential market. But it’s more than simply “planting a flag” in yet another country, and rather reflects Walmart’s more focused global strategy, to drive returns from its reliable scale at home, while finding sustainable growth elsewhere. 

Retail in India is very regional, unmodernised, and eCommerce still in its infancy, so having a local partner to help navigate is clearly important. In the immediate term, the investment gives Walmart a foothold in what has become a fierce eCommerce battleground, one that includes Amazon. By 2020, it is predicted that 358 million Indians will be shopping online, representing 36% of the total population. It’s important to keep in mind that this potential for near-term and future growth is in a market where what we consider “modern trade” - organised chain retail, as opposed to independent traders - still makes up a relatively small – 10%, slice of the retail pie. 

Slowing Amazon’s ambitions
As competition has increased, there’s been a fair amount of consolidation in India’s eCommerce market, leaving Flipkart and Amazon as the clear top two players. To scale and achieve market dominance, both Flipkart and Amazon have been operating as loss making businesses: Winning in India requires commitment, local knowledge and deep pockets.

Amazon was on a clear ascent to overtake Flipkart; Amazon is currently the leader in terms of web traffic, winning in higher frequency categories and gaining a lot of momentum with the expansion of its Prime membership. Walmart’s entry into eCommerce is a perfectly-timed plan to stop Amazon from running away with the market. Walmart will certainly slow down the Amazon juggernaut, but it won’t derail it.

Combining local and global expertise
Walmart’s investment in Flipkart gives them expertise in two key areas required to crack eCommerce in India – mobile and payment solutions. As the Indian economy is still highly cash-centric, with around 68% of transactions made in cash, Walmart can now become embedded early on as shoppers evolve their everyday purchasing behaviour.

Walmart can assert its expertise in online grocery as eCommerce in India grows. For now, given the dominance of traditional retail and the complexities of food distribution, online players largely concentrate in selling general merchandise. Walmart brings with it invaluable knowledge of India’s supply chain through its years of running cash and carry operations there, as well as global expertise in grocery eCommerce.

While aiding Flipkart’s efforts in online grocery with Supermart, it will certainly dampen Amazon’s ambitions. However, given the ambitions of Amazon when it comes to India, and the success enjoyed to date – thanks to Prime and the not unsubstantial USD5 billion invested to date. 

Walmart is likely to bring learnings from China to the Indian marketplace, especially in how eCommerce giants in China are modernizing traditional retail – such as Alibaba’s comparatively modest plan to convert 10,000 mom-and-pop shops to a Tmall-branded network of outlets.

Applying this approach to India, Walmart could not only create superior logistical capabilities to rivals, but begin modernizing retail in the country at an accelerated pace, especially benefiting online grocery. Amazon already approached small convenience stores and embraced the online and offline blend in India, appointing offline partners across Kirana stores, training store owners to help customers buy on Amazon, empowering local sellers to offer online access to the residents. Thanks to all of this, 75% of new Amazon customers come from tier III cities and smaller towns. 

Fuelling the fires of growth
Ultimately, this deal gives Walmart access to key growth levers in the rapidly evolving Indian retail marketplace. Flipkart owns very valuable assets to sustain long-term growth, not only in the form of its marketplace platform, but also with its massive dedicated fashion business (Myntra and Jabong), a logistics business (eKart), and a payments business (PhonePe). All of which will be key to win the eCommerce battle in India, which combined with the retailing credentials of Walmart, makes formidable component for Amazon. This will surely add fuel to the fire of India’s already hot eCommerce market.

What’s Hot on Essential Retail?