Flipkart hopes to catch up with rival Amazon in the food and grocery business by floating a separate venture, Flipkart Farmermart Pvt Ltd. What’s more, the parent company Walmart has pledged support of funds to the extent of Rs 2,500 crore for this purpose, reports MoneyControl. Amazon had gone in almost a similar route setting up a separate venture.
These companies are looking at the huge potential that exists in the Indian context. Both Amazon and Flipkart have seen categories like electronics and fashion grow rapidly in terms of the buying public’s acceptance of the online mode for making purchases. Will the food and grocery categories also be received with the same level of enthusiasm? This may be difficult to answer at this stage. However, the sheer numbers in this country cannot be overlooked. There are at least 500 million people with connections to the internet a majority through their mobile devices. The last known figures for online retail claim hardly 10% of the retail sale is accounted for online though specific product categories like mobile phones have crossed 50%-60%.
In the grocery segment this figure is just a meagre 0.15%. This is where Amazon and Walmart feel they have the opportunity. Even if they tap a small fraction in terms of percentages, the absolute numbers could be mind boggling.
Coming back to Flipkart Farmermart, the company is reportedly in the process of obtaining a food licence and seek the approval of the Department of Industrial Policy and Promotion, DPIIT, to carry on food retailing business within the existing FDI policy. It is only then that it can settle down to plan its strategies to successfully run this business. These categories are quite dicey to handle, especially when compared to the electronics and other product categories. The value per order will be very low, the last mile delivery needs to be handled within hours of the order being placed and the margins are relatively low in these categories.
Walmart’s experience and expertise in the US market in the food category will definitely come handy. There are some existing tie-ups in place with farmers etc. for its B2B business. Those will have to be expanded. There appear to be plans to open offline stores also according to the report on this. However, Flipkart has not issued any formal statement on this development so far.