Flipkart has 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. It is expected to launch a digital marketplace, Flipkart Wholesale, which is in pilot mode, in August, to grow its business-to-business (B2B) vertical.
The 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 $16 billion. The 28 Best Price stores will remain operational.
Following the transaction, Walmart India’s team based in Gurugram is expected to shift to Bengaluru, where Flipkart is based, next year.
Walmart first entered India in 2007 in partnership with Bharti Enterprises. After parting ways in 2013, Walmart decided to go solo with its cash-and-carry stores.
Flipkart Wholesale will start operations with the fashion category, gradually expanding to include grocery, home, large and small electronics products. The new vertical will be headed by Flipkart veteran Adarsh Menon while Sameer Aggarwal, CEO of Walmart India, will move to another role within Walmart after the transition.
Menon, senior vice-president and head-Flipkart Wholesale, said in a telephonic interview that the B2B market size of finished goods across all categories is an estimated $650-700 billion.
“We are looking at a part of that market, which is valued at $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 said.
Flipkart’s new B2B or online wholesale business can cater to the largely unorganized kirana segment and smaller shops who can order goods directly through this platform.
Best Price currently supports more than 1.5 million members, 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 ₹4,095 crore, while losses stood at ₹171.68 crore, according to data sourced from Tofler.
The deal also comes at a time when retailers are working on B2B models, digitizing kiranas and leveraging online sales to draw benefits from India’s large consumer base.
Reliance Industries’ e-commerce portal JioMart is working with small shopkeepers or kiranas to enable online deliveries. It plans to scale up the model further, going forward and is expected to expand to apparel, electronics and healthcare.
JioMart began 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 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,” Bisen added.
Last week, Flipkart Group said it is set to receive a $1.2 billion fund infusion led by Walmart, along with a group of existing shareholders. The investment values Flipkart at $24.9 billion in post-money valuation, with funds expected to arrive in two tranches over the rest of the fiscal.
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.”
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, who didn’t wish to be named.
