The last month and a half there has been so much news about the world’s largest retailer Walmart taking over controlling stake in Indians biggest e retailer Flipkart…
While everyone has been discussing and debating on how and why Walmart did this and how it will change the Indian retail segment will it really have an impact…or will it turn out to be a game of inflated valuations which never leads to actual profitability and value creation…
Let’s try and understand the Indian retail segment to begin with…
India as we know it is a consolidation of several princely states …a consolidation which started with the British and ended with the creation of the Indian republic…
But if we try and understand these different states, we find each of these princely regions had their own beliefs, traditions, cultures and events and of course food habits…So what has all this got to do with Indian retail segment? Stay with me and you will find out about that later…
Retail accounts for over 10 per cent of the country’s Gross Domestic Product (GDP) and around 8 per cent of the employment. India is the world’s fifth-largest global destination in the retail space.
The Indian retail market is presently worth 650 billion dollars and is expected to grow by 60% and reach 1.1 trillion dollars by 2021.
The retail segment can be broadly classed into three categories
1. The unorganised sector
2. The organised retail sector
3. The e-commerce sector
The top players in the organised retail sector are:
1.Reliance retail – It has 4000 retail stores…Rs 70000 crore entity with a PBIDT of about Rs 1200 crores and PAT of Rs 500 crores. Parent company Reliance Industries is also into Mobile under brand name Jio which has become the number 3 mobile player with close to 180 million users…
2. Future Retail – Has close to 1000 retail stores …plans to grow the same to 10000 stores by 2022…has close to Rs 18000 crores of turnover and PBIDT of Rs 605 crores.
3.D mart (Avenue Supermarkets) – the chain which got listed in the Indian Stock market is valued at Rs 85000cr and is the most profitable with a PBIDT of Rs 994 crores and PAT of Rs 482cr and income of close to Rs 10000 crores.
The Indian e-commerce sector contributes to only 3% of the total market…
Unlike in the other markets where online e commerce has grown on assortment and convenience in India the same has grown on discounts. The e- commerce sector at 650 million dollars is miniscule compared to 4.3 trillion-dollar market in the US and 3 trillion markets in China.
The top players in the e commerce sector are as below
1. Flipkart
With a 32% market share in the Indian e commerce segment is the biggest player in the market. It has a GMV (Gross Merchandising Value) of Rs 48750 crores including Myntra and Jabong is valued at 20 billion dollars and an investment of 16 billion dollars and a net loss of Rs 8700 crores.
2. Amazon
With a market share of 31% in the Indian market Amazon has an aggregate revenue of Rs 15684 crores in India and has accumulated losses of Rs 3000 crores. Globally Amazon has net sales of 1,77,868 million dollars and net income of 3033 million dollars. Amazon often refers to itself as a technology company due to its tech offerings like Kindle, Firestick, Alexa and Amazon Prime.
If we try to understand the product sales in Indian e commerce companies the key product categories that contribute to maximum sales are
· Electronics which contributes to 47% of the total sales
· Apparel which contributes to 31% of total sales
· Home and Furnishing which contributes to 8% of the total sales
· Books which contributes to 7% of the total sales vales
So, it’s clear that almost 70% of the total sales value is contributed by the two product categories of electronics and apparel.
Walmart which has built up a formidable retail presence has a global turnover of 500343 million dollars and a net income of 10523 million dollars. Though it has built up a formidable retail presence in the US with a store within 20 minutes from every US citizen its net income has dropped from 17089 million dollars in 2015 to the present 10523 million dollars under the onslaught of Amazon and other e-commerce retailers.
Although Walmart has been present in India through a JV with Bharati since 2007 in cash and carry retail, it has not really been able to make a dominant presence to the prevailing FDI policies in retail. Walmart has also been trying to get into e-commerce in several other markets also. While the huge expertise of Walmart in logistics and building up its own private labels in several categories will help Flipkart in India the real game changer could be somewhere else.
Coming back to several princely states making up the India that we know today and the different food habits that exist across India…
In fact, the preference keeps changing every few hundred kilometres… let’s consider a small example the Desi Atta brand of Future retail has close to 59 categories and is still growing…So while raggi atta does well in one market in the adjoining market it would be johar atta and so on…
This is one of the primary reasons why the local kirana stores continue to have a dominant present in India though they really haven’t changed much in the last 20 to 30 years.
Food and grocery market In India is a 550-million-dollar market and India and none of the major ecommerce players have been able to make any strong presence in this sector.
Therefore, the biggest sale category in e-commerce retail in India is electronics where the purchases are once in 3 years for a mobile product category and maybe 7 to 8 years or more for a television in the case of food and grocery it’s about weekly and monthly purchases and hence the entire dynamics that has helped e commerce grow in India are not applicable in this sector.
So, while the marriage between Walmart and Flipkart in my opinion is likely to dynamically alter the food and grocery segment in India using the huge retail experience of Walmart in organised retail…maybe the Indian traders of the various princely states will have the last say…or could we see partnership between the two.
Waiting to see how it will unfold in the coming days…
