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January 31, 2019
Walmart paid a staggering $16 billion to take control of Flipkart, as it bet on the country’s growing consumption boom.
Written By DEBABRATA DAS AND DEEPTI CHAUDHARY
In the summer of 1993, less than a year after India’s economy opened up to the world, a little-known supermarket opened its doors at Archana shopping complex in a posh south Delhi neighbourhood. I was barely six at the time, but I still vividly remember the first time I walked through the doors of Nanz Supermarket. The store was larger than anything I had ever seen. Unlike dingy neighbourhood kirana stores, Nanz was brightly lit.
The entire shop floor was seemingly endless aisles of brightly coloured packaged foods, chocolates, and cold drinks from brands, which so far, I had only seen on hoardings of international cricket matches. Sitting in a shopping trolley pushed by my father while my mother filled it up, for the first time I felt no less than our cousins from Australia who kept complaining about the lack of supermarkets when they came to India. Overnight, the most mundane activity of buying household provisions had turned into an enjoyable family outing. But Nanz Supermarket was way ahead of its time. Or perhaps it was in the wrong place at the wrong time.
It struggled to replace your friendly neighbourhood kirana store uncle who remembered your name. And business-wise, rental costs were back-breaking. By the end of the 1990s, Nanz—a joint venture between Germany’s Helmut Nanz, who at the time was at the helm of a $2 billion German retail chain, Don Marsh of former U.S. convenience store Village Pantry, and India’s Nanda business family, the promoters of Escorts Group—had shut shop. A revival in 2002 didn’t last long either.
Jabong Warehouse, Pataudi Road, Gurgaon.
While Nanz has faded away, India’s appetite for modern retail has grown exponentially in the 21st century. Today, the urban landscape in many cities is dotted with shopping malls packed with people ready to shop till they drop. Online shopping is also booming in the country of 1.3 billion people, where some 420 million millennials are largely driving consumption because of their spending power and urge to splurge. More than 350 million Indians—more than the total population of the U.S.—are part of a family that has a combined income of more than `25,000 per month. More than 478 million people have access to the Internet and at some point in 2019, India is expected to overtake the United Kingdom as the world’s fifth-largest economy.
In the summer of 1993, less than a year after India’s economy opened up to the world, a little-known supermarket opened its doors at Archana shopping complex in a posh south Delhi neighbourhood. I was barely six at the time, but I still vividly remember the first time I walked through the doors of Nanz Supermarket. The store was larger than anything I had ever seen. Unlike dingy neighbourhood kirana stores, Nanz was brightly lit.
The entire shop floor was seemingly endless aisles of brightly coloured packaged foods, chocolates, and cold drinks from brands, which so far, I had only seen on hoardings of international cricket matches. Sitting in a shopping trolley pushed by my father while my mother filled it up, for the first time I felt no less than our cousins from Australia who kept complaining about the lack of supermarkets when they came to India. Overnight, the most mundane activity of buying household provisions had turned into an enjoyable family outing. But Nanz Supermarket was way ahead of its time. Or perhaps it was in the wrong place at the wrong time.
It struggled to replace your friendly neighbourhood kirana store uncle who remembered your name. And business-wise, rental costs were back-breaking. By the end of the 1990s, Nanz—a joint venture between Germany’s Helmut Nanz, who at the time was at the helm of a $2 billion German retail chain, Don Marsh of former U.S. convenience store Village Pantry, and India’s Nanda business family, the promoters of Escorts Group—had shut shop. A revival in 2002 didn’t last long either.
While Nanz has faded away, India’s appetite for modern retail has grown exponentially in the 21st century. Today, the urban landscape in many cities is dotted with shopping malls packed with people ready to shop till they drop. Online shopping is also booming in the country of 1.3 billion people, where some 420 million millennials are largely driving consumption because of their spending power and urge to splurge. More than 350 million Indians—more than the total population of the U.S.—are part of a family that has a combined income of more than `25,000 per month. More than 478 million people have access to the Internet and at some point in 2019, India is expected to overtake the United Kingdom as the world’s fifth-largest economy.
$2k per capita GDP to drive growth in consumption
No wonder then that when the No. 1 ranked Fortune 500 company Walmart Inc decided to restructure its global operations, it decided to scale back from the U.K. and place its bets on India. It paid a staggering $16 billion to take control of India’s largest e-commerce company, Flipkart, with a 77% stake last year. The deal is the largest in the e-commerce space worldwide, the biggest purchase by Walmart in its 56-year history, and easily the country’s most significant corporate move of 2018. “India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading the transformation of e-commerce in the market. We are excited by what the future holds,” Doug McMillon, Walmart’s president and chief executive officer, said after the deal was announced last May.
Source: McKinsey Global Institute report titled “Next Big Spenders: India’s Middle Class”
It was in a sense the perfect time for Walmart to enter India. After a failed attempt 10 years ago to set up physical stores in partnership with Bharti Enterprises due to an uncertain regulatory environment, the purchase of Flipkart provided it with a ready-made customer base, infrastructure, and operations to gain a sizeable chunk of the average Indian’s wallet. Walmart stepped on the accelerator from the get-go to integrate Flipkart within the universe of the world’s largest retailer. Compared to other mergers and acquisitions in India, work to integrate Flipkart with Walmart moved at a breakneck speed. Already a major restructuring has occurred within Flipkart: The back-end operations of its two fashion e-commerce portals, Myntra and Jabong, have been integrated and traffic from Jabong will soon also be directed to Myntra.
Barely a few months after the deal, India’s most successful startup entered a new phase of life without its founders. Co-founder Binny Bansal quit as group CEO in November following allegations of personal misconduct; the other co-founder, Sachin Bansal (not related to Binny), had already quit the firm when Walmart entered the fray in May. Although the startup community in Bengaluru was shaken by the exits and looked at the changes with apprehension, Flipkart insiders are brimming with confidence under their new chief executive officer, Kalyan Krishnamurthy. “The deal with Walmart is combining its global expertise with Flipkart’s market leadership, positioning both entities for long-term success. We strongly believe in this partnership’s potential to contribute to the economic growth of India by driving the next wave of retail and by providing quality, affordable goods for customers, while creating new skilled jobs and opportunities for suppliers,” says Rajneesh Kumar, chief corporate affairs officer, Flipkart Group.
Though Flipkart continues to pile up losses and is expected to remain a drag on Walmart’s results for the near term, Judith McKenna, president and CEO of Walmart International, sought to soothe investors’ worries in November. “We are in India for the long term and we are in India to be successful,” she said. That plan includes a greater focus on private labels, use of data analytics and artificial intelligence to drive efficiencies, and finally the holy grail of every modern retail chain in India—groceries.
Groceries is the new frontier for online shopping. Flipkart’s biggest rival, Amazon, has already tasted success in the segment through Amazon Now, which promises two-hour deliveries using products from its own warehouses and local supermarkets across several cities. Apart from Amazon, startups like BigBasket and Grofers have also had success in the online groceries space.
Judith McKenna, president and chief executive officer international at Walmart Inc.
We are in India for the long term and we are in India to be successful.
While the hunt for profitability is on, Flipkart wants to expand its footprint and get even more customers. It has a mission to add 500 million new customers with 200 million of those expected to come in the next three-five years. “Our aim at Flipkart is to grow the ecommerce industry as a whole across the country by innovating in newer, younger categories and focussing on customers from outside metros. From expanding our logistics network and the PIN codes we service to on-boarding smaller sellers from tier 2 and 3 cities, we are seeing impressive customer adoption in nonmetro cities,” says a Flipkart spokesperson.
Kalyan Krishnamurthy, Chief executive officer of Flipkart
A target like that would have seemed ambitious a few years ago, but looking back at the last decade, Flipkart’s ambitions seem more realistic. Though several websites like Indiaplaza and eBay India were the first movers in the e-commerce space in the country in the early 2000s, India’s love affair with online shopping was really cemented only towards the beginning of this decade. Today, India’s online retail market is estimated to be over $20 billion and is slated to grow to $200 billion by 2026, nearly 12% of the total retail market, according to a recent study by Morgan Stanley. While it is much smaller than China’s $1.07 trillion and the $511 billion U.S. e-commerce market, India is by far the fastest growing. Overall, India’s retail market size stands at $670 billion but it still remains largely unorganised with most business done through small kirana or mom-and-pop stores. Industry estimates suggest that by 2022, India’s retail market could well be over $1 trillion.
The aspirations of Indians have provided a boost to virtually all sectors with a direct connection to consumers. Whether it is FMCG, fashion retailing or consumer electronics like televisions, washing machines, air conditioners, refrigerators, and other such products, shopping seems to be India’s favourite pastime. A recent report by the World Economic Forum with Bain & Company says India is poised to be the third largest consumer market, behind only the U.S. and China. The report sees consumer spending growing from $1.5 trillion today to $6 trillion by 2030 with the upper-middle and high-income segments expected to grow from one in four to one in two households.
And it is not just e-commerce that is booming. Brick-and-mortar spending, especially in rural areas, is also rising sharply. Most in the FMCG industry feel the Indian consumption growth is at an inflection point where the only way is up. “We have clearly seen an improvement in rural consumption. Overall rural is growing at 1.25 times more than urban and that trend should continue over the coming years,” says Sunil Kataria, chief executive officer of India and SAARC at Godrej Consumer Products Ltd.
Sunil Kataria serves as Chief Executive Officer of India & SAARC at Godrej Consumer Products Limited.
We have clearly seen an improvement in rural consumption.Overall rural is growing at 1.25 times more than urban and that trend should continue over the coming years.
Rural customers are also increasingly choosing products that traditionally worked only in urban markets. Whether it is cream biscuits and chocolate chip cookies or chips and snacks made by multinationals, the shelf space in small-town stores is increasingly looking similar to that in urban areas. It is a trend that, according to Kataria, will only increase due to the investments in infrastructure made by the government which will help increase distribution to rural areas and make products more accessible.
Saumya Tyagi, Marketing Director, Tetra Pak
A lot of companies are addressing the needs of the bottom of the pyramid, the middle of the pyramid and at the same time, entering premium categories.
“The last decade (2005-2015) was about reaching the rural markets. With the improvement in infrastructure and road connectivity, we have already reached there. In the next decade, we will see consumers at rural and semi-urban levels try out products that conventionally were thought to be for only urban consumers,” says Mayank Shah, products category head at Parlé. Shah suggests that growing Internet penetration is increasing the aspirations of rural and semi-urban consumers.
Rising aspirations mean greater premiumisation in products offered to Indian consumers. Saumya Tyagi, director-marketing, India and South Asia markets, Tetra Pak, says far greater affluence has come into the Indian market in the last 10 years and this is reshaping the way Indians shop. “In every category, premium brands have emerged. Take fashion, for example. We have seen the likes of ZARA, H&M, Marks & Spencer and others enter the market. Even in the ice cream market, Magnum from Kwality has entered the market,” says Tyagi. “Today, a lot of companies are addressing the needs of the bottom of the pyramid, the middle of the pyramid and, at the same time, entering premium categories.
The combination of these conditions has created the perfect environment for big-ticket investments in consumerdriven industries like retail, e-commerce, and FMCG. Tetra Pak’s Tyagi points to the deals of 2018 as an example of how rising incomes and aspirations have made India’s consumer space an attractive investment destination. He is also convinced that investment from foreign entities will grow and the consumer space will be one of the most attractive industries.
While Walmart’s purchase of Flipkart was the landmark deal of 2018, the year will also be remembered for large investments into companies with a direct reach to Indian consumers. Deals like Unilever’s purchase of GlaxoSmithKline Consumer Healthcare and the Horlicks brand, Zydus Cadila’s acquisition of the Complan brand from Kraft Heinz, and investments in companies like Swiggy, Grofers, and BigBasket highlight the appetite for investing in India’s consumer space. Overall, more than $20 billion was invested in either acquiring companies or picking up a stake in firms in the e-commerce, FMCG, and retail space. “India is certainly one of the strategic markets on the radar of companies that have global ambitions, and there are few such large markets with similar growth prospects in the foreseeable future,” says Devangshu Dutta, chief executive of retail consultancy Third Eyesight.
Consumption in India has really grown after years of socialist-era deprivation before the economy was thrown open. “These deals are essentially highlighting the consumer story of India where we are seeing an increasing middle class, rising demand for health-related products, fashion products, and branded products,” says Pankaj Chopda, director, Grant Thornton India. “In the health space—across food, drinks, and organic food—we are seeing a lot of interest from companies wanting to make large bets,” adds Ausang Shukla, managing director, corporate finance, Ambit Capital. “Consumers are shifting a lot more towards healthier alternatives and for food companies, within all categories of consumption, the healthier alternatives are a big focus.”
Yet, no matter how robust the fundamentals, every industry has its risks. Some looming threats to the Indian consumption growth story are the seemingly uncontrollable farm distress, the need to create enough jobs, and regulatory uncertainties. One of the big hurdles has been the restriction on foreign direct investment in retail. In 2012, the United Progressive Alliance-II government tried to liberalise the policy and retail was split into two formats: multi-brand and single-brand. While 100% FDI was allowed in single-brand retailing, which allowed firms like Ikea and Uniqlo to invest in India, multi-brand retail was restricted to 51% and had several riders. The final call on allowing FDI in multi-brand retail was also left in the hands of state governments. As a result, the likes of Walmart and Carrefour stayed away from India. The growth of e-commerce opened a new window, but a cloud of uncertainty has emerged on foreign investment in the space.
The e-commerce industry is particularly concerned after the Department of Industrial Policy and Promotion tweaked foreign direct investment norms for e-commerce firms. It seeks to stop e-commerce companies from selling products of entities in which they have an equity stake and restricted online marketplaces (such as Amazon India, Flipkart) from selling any product exclusively on their platform. The revised norms will be effective from February 1.
K. Ganesh—Bengaluru-based promoter of ecommerce companies such as BigBasket, Bluestone, FreshMenu, and Homelane—feels some changes to the FDI policy in e-commerce go against the principles of free market economics. “This will negatively impact all the milestones achieved in the last 10 years during which billions of dollars of FDI have come in, millions of small sellers have had the opportunity to sell their products across India thanks to well-funded marketplaces, [and] lakhs of new jobs were created at the entry level,” he says.
Such short-term hurdles haven’t dampened long-term optimism about Indian consumption growth. Despite a global recession, demonetisation, and the rollout of the goods and services tax, over the past 10 years stocks of companies in the consumer space have outperformed the S&P BSE Sensex. So if you thought overcrowded malls during Christmas were a one-off phenomenon, think again. There is a long way to go before the Indian consumer’s appetite is satiated.
Walmart paid a staggering $16 billion to take control of Flipkart, as it bet on the country’s growing consumption boom.
(Additional reporting by Arnika Thakur, Debojyoti Ghosh, and Rozelle Laha)
(This story was originally published in the January 2019 issue of the magazine)
Source: fortuneindia
admin
January 13, 2019
With its ‘Shopping on Instagram’ feature, the company will help customers buy products online. Apart from India, the company is expanding the feature to 26 countries from existing 46 countries.
Written By Sandeep Soni
Instagram even beat out TV in this younger target group, a medium only 3 percent of respondents said was a primary platform.
Instagram is planning to compete against e-commerce biggies in India such as Amazon, and Flipkart even as Google too launched its shopping search feature last December. Facebook too had been testing the Indian e-commerce waters in the past.
With its ‘Shopping on Instagram’ feature, the company will help customers buy products online. Apart from India, the company is expanding the feature to 26 countries from existing 46 countries, the company said on its website. That seemed imminent since India is its second largest market with 71 million users – as per company statistics site Statista – following the US with 121 million users as of October 2018.
Selling on Instagram, hence, is a no-brainer for e-commerce startups particularly in fashion. “It is a great channel for an online fashion store like us to sell items to the right audience since the majority of its users are teens. Also visually it is very rich and that’s what a fashion brand needs,” said Sujayath Ali, co-founder and CEO of Sequoia Capital-backed online women fashion marketplace Voonik.
Also for startups like online-to-offline shopping marketplace Fynd (that offers its open API for businesses to develop omnichannel retail apps), it is a great opportunity. Fynd’s API, for instance, powers Google’s What’s In Store feature for shoppers to find out products stocked in stores near them. “I am sure once Instagram launches this, it will look at tech platforms like us to enable that,” its co-founder Farooq Adam said.
Mindset Matters
As Instagram looks to monetize its traffic and help customers get instant shopping gratification, it is important to understand how does it convert the eyeballs to actual purchases.
From the customer context, his/her mindset while browsing a brand page versus on an e-commerce site versus on Instagram is different “On a brand’s website it is about having already discovered the product, on marketplaces like Amazon then they are looking to discover products, but on Instagram, instead of buying it is more about aesthetic elements. I am not sure if it can drive customers to buy products,” said Devangshu Dutta, CEO at retail consulting firm Third Eyesight.
According to details mentioned on the Instagram website, a business can tag up to five products per image or video and up to twenty products per carousel in a feed. When an Instagram post is created with tagged products, the post is shared with the business’s audience on Instagram. The customer can check the product’s price and details and click on it which is directed to the product description page on Instagram. Customers can then go to the website of the product to buy it.
Here, the discoverability aspect of Instagram to allow customers to find the latest trends in products works great for startups. “As a discovery platform, it will help startups with significant access to customers and influencers,” said Pinakiranjan Mishra, partner and national leader, retail and consumer products, Ernst & Young India. “However, Instagram might start charging startups in some way,” added Mishra. The business account on Instagram, similar to Facebook, is free.
From a discovery platform, if Instagram switches to an e-commerce model and starts transacting then there will be some impact. “Most of the fashion startups are too small, so it might impact them mid-to-long term instead of short-term because the market is growing,” said Mishra. However, it might as well not be the case.
Customer Delight?
According to Forrester’s 2018 Customer Experience Index based on a survey of over 9,000 Indian online adult consumers in 2018, the rate of improvement of customer experience is slowing down. “Of the 36 brands surveyed, just five had a statistically significant rise in their scores, compared with 20 last year. The five companies include Bharti AXA, HDFC Bank, American Express, e-fashion and accessories site Koovs.com, and electronics retailer Ezone.
Across the end-to-end transaction in e-commerce that includes discovery, order, delivery, and post-delivery problems such as returns or refunds; customer experience has to be seamless. And, Instagram might struggle in it.
“While Instagram is good in product discovery and it might even figure out ordering, and payments but delivery and post-delivery experience will be very difficult as both are very operational in nature,” said Ali. “Companies spend decades to get them right. Neither Facebook, WhatsApp or Instagram have any experience in the physical operation of goods. So either they would stay away from it or would not do a good job.”
Instagram didn’t respond to the email seeking comments for the story.
Even if Instagram is able to pull off all that successfully, the fact that the transaction is initiated from its platform, customers might not find it seamless in case of any default. “If the customer buys a product, he/she is buying from the Instagram environment whether the payment happens on the brand page, e-commerce site etc. So, Instagram will be responsible for how it executes management of customer expectations,” said Dutta. “I think Instagram will drive impulse purchase, unlike fashion e-commerce sites where the buy is planned instead of impulse.”
Source: financialexpress
admin
January 6, 2019
Written By Editor
Ikea wants to sell you more than furniture – it wants to sell sustainable living, and that includes what you need to grow your own food.
Ikea is reported to be developing a new line of products with British industrial designer Tom Dixon, to be formally announced in May 2019 and released in stores in 2021.
The retailer has already introduced a hydroponic system to grow lettuce on your kitchen countertop, and the company’s innovation lab, Space10, experimented with a flatpack urban farm to fit in your backyard.
The collaboration with Tom Dixon would possibly to make it easier to grow plants in small spaces in city homes and to maximize the amount of food production in the smallest possible space.
With this, Ikea is jumping on to the trend of products focused on people farming in an urban environment.
Source: billionfarmers
admin
January 4, 2019
The retail landscape of tomorrow necessitates stronger brand-customer connections that go beyond purchase
Written By Devangshu Dutta
There were rumours of a mega joint venture between Reliance Retail and China’s Alibaba, and also reports that Japan’s SoftBank is looking at ploughing $200 million into FirstCry.
Do you have this feeling that 2018 went by a little too quickly? Well, however quick it seemed, it was certainly momentous for retail in India.
If 2016 was marked by the shock of demonetisation, and 2017 by the pains of GST implementation, 2018 highlighted two threads — the obvious convergence of the online and offline world that had been ignored for far too long, and the interest of foreign capital in India’s consumer world.
India calling
Walmart bought India’s loss-making e-commerce leader (Flipkart) for an eye-popping $20.8 billion valuation, while e-commerce giant Amazon injected equity into Shoppers Stop, bought Aditya Birla’s More grocery chain (49% through a back-end entity) and held discussions with Future Group to acquire 9.5% in Future Retail. There were rumours of a mega joint venture between Reliance Retail and China’s Alibaba, and also reports that Japan’s SoftBank is looking at ploughing $200 million into FirstCry. Rivals Amazon and Alibaba were both reported to be looking at Spencer’s, one of India’s oldest retail chains currently owned by the RP-Sanjiv Goenka group.
Videos of the crush of curious crowds at India’s first, much anticipated Ikea store went viral, and the company said it planned to open in 40 locations over the next few years, upping its earlier projection of 25. Chinese retailer Miniso came out of nowhere and claimed to have clocked `700 crore worth of sales in the very first year in India.
But, along with these cross-border ‘big bangs’ we saw domestic confidence also quietly resurging. Indian retailers are not cowering before large foreign retailers and expensive e-commerce advertising splashes; today, they are less defensive about their own prospects than they were two years ago. There is also a growing interest among entrepreneurs and corporates to create new retail businesses, which augurs well for the diversity of competition and freshness of offerings in the market.
Going into 2019, one thing I can say with certainty is that the weather, economic and political — both in India and elsewhere — will be unpredictable, and might even turn stormy. Retailers should ‘expect the unexpected’. To ensure that the business remains on track, however rough it gets, retailers must centre all major strategies and decisions on the customer. Although this theme has been around for centuries, it is surprising how much it gets ignored in the most customer-facing business.
Make a connection
Retailers tend to divide customers into rigid segments. My suggestion would be to look at customers through the behaviour and experience lens.
It is often emphasised that Indian consumers are ‘deal seeking’. I don’t think we should treat this as a uniquely Indian thing: all consumers look for value reassurance in unpredictable times. Also, remember that even in value seeking, experience still rules. Retailers and brands that are solely focussing on price or price and feature comparisons are turning their business into a commodity. They are missing the long game: of defining the customer’s experience from the first moment of brand contact to the purchase and beyond.
In 2019, if you want to focus on a single competitive strategy, it should be this: for stickiness and sustainability, think about the customer’s experience, and actively design it in every environment where the customer connects with you.
Lastly, technology is transformative, but tends to get restricted to being the contrast between e-commerce and physical retail. Indian retailers need to embrace technology in all forms, from using the zillions of transactions within the business and with the customer for developing actionable knowledge, to automating processes.
Make customer-interfacing technology as invisible or intuitive as possible. When in doubt, learn from one of the leaders in the sector, Amazon: its 1-click ordering patent 20 years ago gave it a huge advantage over competitors. It is now aiming to replicate the same seamless, friction-free behaviour physically with its Dash button. Or pick cues from younger fashion businesses like Rebecca Minkoff, whose focus is on ease and convenience. The key reason for adopting technology is to remove friction for the customer.
I have no doubt that 2019 will be eventful. Let the customer experience be the guiding light to keep our businesses afloat and off the rocks.
Source: financialexpress
