Walmart, the brick and mortar retailer honcho, is taking on the e-retailer big daddy Amazon in the emerging Indian e-commerce market. While, it is clearly a big deal for Flipkart and its founders, it is still early days to assess the net gain for Walmart as it is in an experimental mode to win a share of Indian online retail market through Flipkart.
One thing is certain in the acquisition of the Flipkart stake is that the cart has flipped in favour of the small and medium businesses in India, more so for groceries in particular where the efficiency of the supply chain for consumables and perishables has never been robust and efficient. Upping the ante for speed, access and delivery of consumables and perishables, Walmart and Amazon will take organized retail forward to better customer service and experiences while delivering higher market access to small and medium players in the Indian supply chain.
Walmart has traditionally grown its brick and mortar retail business by being the pioneer in using technology to manage the retail business while Amazon has grown it's online business by staying at the forefront of technology applications for enhancing customer experience in its online retail business. The growth story attained a different spin with Amazon's recent acquisition of Whole Foods in the US that has brought the online player to the brick and mortar grocery retail space, and their ability to integrate online and offline sales is creating potential consequences for other brick and mortar retail players.
With its recent proof of concept Amazon Go store in Seattle it is offering a different shopping experience to customers who can shop and leave without standing at check out counters to pay for purchases as their Amazon account automatically gets charged through the Amazon Prime App. With this experiment, Amazon is transforming the retail experience for customers and may soon challenge the incumbents in the brick and mortal retail space.
Walmart on the other hand has entered the online space with its acquisition of Jet.com and has improved its reach with millenials and urban population at large where Walmart did not have a significant presence and its retail penetration was substantially low. The acquisition of Flipkart most probably will deliver a similar result for Walmart in India.
Historically, Walmart's success as the fastest growing brick and motor retail business in the world has been linked to its offering of everyday low prices. A promise it has been able to deliver to its customers based on its well-formulated strategy for supply relationships, logistics, and product assortment.
Therefore, Walmart's capabilities will be available to Flipkart to manage its internal business processes and to create a strategy that is internally consistent for a discount retailing business to address the discount hungry clientele in India.
It is widely known that low prices generally contribute to higher purchase volumes which then can create scale economies and may pave the way for even lower prices in the future. Walmart has the experience of leveraging large purchase volume to command a high degree of control over its suppliers which can also contribute to efficient returns management and promotional spending. As it always has been the case, the relationship that Walmart builds with suppliers is known to be collaborative as Walmart has the practice of sharing data relating to sales related to geography, forecasting and shipping, a practice that benefits the suppliers alongwith its focus on efficiency. With this, Walmart can manage to offer and deliver a good cost efficient and revenue generating product mix.
Therefore the change in ownership and management control will improve Flipkart's current supply chain, data analytics and the seller management process.
With these developments of Amazon and Walmart increasing their presence in the domestic market, India is poised to increase the variety and quality of products made available to consumers. Niche as well as small and medium size suppliers will generate a strong push to find new distribution avenues.
Going forward, the need to connect with consumers will become more intense, and online will continue to evolve as an increasingly attractive channel for distribution. Why will this happen? With smart phone penetration in the market ,the Indian consumer is increasing becoming comfortable with online purchase, more so in daily consumables and perishables space. An excess of supply can create situations that every possible source of supply will attempt to sell their produce at almost any price and anywhere before the intrinsic value of the produce erodes with time and carrying costs. Walmart and Amazon provide a channel offering consumers almost any product in any category and therefore open up flawed and clogged local supply chains.
(The author is Professor, Corporate Strategy and Policy, Indian Institute of Management Bangalore)