Flipkart buys Walmart India's wholesale biz

Flipkart acquired the Indian operations of Walmart Inc. as its US parent consolidates its operations in this fast-growing retail market to compete with Reliance Industries Ltd and Amazon, among others.

Flipkart will take over Walmart India Pvt. Ltd, which operates the Best Price cash-and-carry wholesale stores and will launch a digital marketplace, Flipkart Wholesale, which is in pilot mode, in August, to expand its business-to-business (B2B) vertical.

This acquisition brings Walmart’s entire portfolio in India under the Flipkart group, two years after it bought a majority stake in the homegrown e-tailer for US$ 16 billion. The 28 Best Price stores will remain operational.

It is expected that the Walmart India’s team based in Gurugram will be shifted to Bengaluru, where Flipkart is based, next year.

Walmart first entered India in 2007 in partnership with Bharti Enterprises. It went solo with its cash-and-carry stores after parting ways in 2013 with Bharti Enterprises.

Flipkart Wholesale will initially operate with the fashion category and will expand gradually to grocery, home, large and small electronics products. This new vertical will be headed by Flipkart veteran Mr Adarsh Menon while Mr Sameer Aggarwal, CEO of Walmart India, will move to another role within Walmart after the transition.

Mr Menon, senior vice-president, and head-Flipkart Wholesale said that the B2B market size of finished goods across all categories is an estimated US$ 650-700 billion.

“We are looking at a part of that market, which is valued at US$ 150 billion, as the online B2B business continues to grow as a critical channel. Flipkart Wholesale can leverage Walmart India’s merchandising experience, strong relationship with brands and over 12 years of experience of operating Best Price stores, most of whom are small businesses," he added.

It is expected that Flipkart’s new B2B or online wholesale business will cater to the largely unorganized kirana segment and smaller shops who can order goods directly through this platform.

Currently, around 1.5 million members are supported by Best Price, including kirana stores, food service and hotel industries, and other medium and small enterprises.

For the year ended 31 March 2019, the total income of Walmart’s 28 Best Price stores was Rs 4,095 crore (US$ 580.93 million), while losses stood at Rs 171.68 crore (US$ 24.36 million), according to data sourced from Tofler.

This deal also comes at a time when retailers are focusing on B2B models, digitising kiranas and leveraging online sales to draw benefits from India’s large consumer base.

JioMart, Reliance Industries’ e-commerce portal, is operating with small shopkeepers or kiranas to facilitate online deliveries. It plans to scale up the model further, going forward and is expected to expand to apparel, electronics and healthcare. It began with pilots in May in Maharashtra, and orders through the hyperlocal retail business have scaled to touch 250,000 per day.

“It is process integration and how Flipkart wants to grow the food and grocery business in India. The food and grocery business is still small for them, and with its ability to reach the market and technology that it has, Walmart would want to alter the cash-and-carry model of not just being a brick-mortar-led store but use e-commerce so they can ramp up faster," said Mr Ankur Bisen, senior vice president, retail and consumer products, Technopak.

“Walmart wants to grow the business by collaborating with traditional retail rather than competing with them. Even JioMart is trying to grow the business by on boarding kiranas as a model to grow," Mr Bisen added.

Flipkart Group said it is set to receive a US$ 1.2 billion fund infusion led by Walmart, along with a group of existing shareholders. The investment values Flipkart at US$ 24.9 billion in post-money valuation, with funds expected to arrive in two tranches over the rest of the fiscal.

Mr Kalyan Krishnamurthy, CEO, Flipkart group, said, “…The acquisition of Walmart India adds a strong talent pool with deep expertise in the wholesale business that will strengthen our position to address the needs of kiranas and MSMEs uniquely."

Mr Judith McKenna, President, and CEO, Walmart International, said, “Today marks the next big step as Walmart India’s pioneering cash-and-carry legacy meets Flipkart’s culture of innovation in the launch of Flipkart Wholesale."

“Reliance and its kirana strategy have shaken up a lot of things in the B2B market over the last six months. If Walmart wanted to build its B2B side of the business just by way of their own stores, the only way to succeed is to have Flipkart do it because that’s the way they can scale," said an analyst.
 

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.