Walmart-Flipkart deal set to boost infrastructure in India’s food market

INDIA – The proposed Walmart-Flipkart combine plans to make an aggressive play in the food sector with a substantial chunk of the Bentonville retailer’s investment in the Indian market place being earmarked to build back-end food and grocery infrastructure in a bid to gain pole position in India’s online and offline food retail markets.

Walmart lags US rival Amazon in plans for selling food items directly to consumers in India. Amazon last year received government approval to start a venture to sell locally produced and packaged food items through offline and online channels.

Amazon’s fully-owned subsidiary Amazon India Retail Pvt Ltd is currently selling food items online in Pune on a pilot basis.

It is also on the lookout for a strong brick-and-mortar presence in India and in talks with several players, prominent among them being the Future Group.

According to two industry executives familiar with the plans, a significant portion of Walmart’s proposed investment in Flipkart will be used to build infrastructure including food parks, cold chain, collection centres, sorting and grading facilities, centres for food excellence and allied facilities.

These planned investments are in line with Walmart’s greater push globally in food retailing for future growth.

A spokesperson for Walmart India declined to comment on the planned investments but said food is crucial component of the Bentonville company’s wholesale business in India.

“Food is an important part of our cash-andcarry business comprising around 60-65% of sales annually. As we grow our cash-and-carry business further, we’re confident that we’ll be able to impact more farmer lives in the country by increasing their income,” the spokesperson said in an emailed response.

ET had earlier this month reported Walmart could invest up to $10-12 billion to purchase stake in Flipkart. Walmart will start with 20-26% to become largest shareholder in the home-grown ecommerce company and the world’s largest retailer eventually plans to increase its shareholding to 51% in tranches.

The deal will include the purchase of shares from existing investors such as Japanese telecom and Internet giant SoftBank.

A consumer analyst at a foreign consulting firm said Walmart could use Flipkart’s consumer database to push low-priced grocery and that would lead to purchase of other items.

“Flipkart has a huge database, so technically Walmart could just build warehouses in cities and deliver food and grocery online and they don’t even have to open stores everywhere,” the analyst said, asking not to be quoted as Walmart is his firm’s client.

Food and grocery is the largest retail segment in India and it accounts for almost 60% of the country’s annual $600 billion plus retail market. But, organised food and grocery retail currently accounts for less than $10 billion of that market at present.

Walmart’s focus on food in India will mirror its global strategy. According to analysts, the company is renewing its push on food in the US, its largest market.

A recent report by investment bank Oppenheimer said Walmart is looking at a slew of measures to boost food sales including stepping up its fresh offerings and private labels, creating accessible online grocery pick-up services and ramping up offerings at Jet.com that Walmart acquired in the US in 2016 for $3.3 billion.

This has become even more important after Amazon last year acquired Whole Foods in the US for $13.7 billion, taking its fight right into Walmart’s stronghold of food and grocery business.

ET Retail

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