Written By Chaitali Chakravarty & Rasul Bailay, ET Bureau
NEW DELHI: Even after acquiring India’s largest ecommerce company Flipkart, Walmart will stay away from applying to invest in a food-only retailing venture in the immediate future that will allow the US giant to stock and sell groceries directly to consumers through the online platform.
Walmart would rather have a presence in the food products market through third-party retailers on Flipkart and escape the scrutiny and riders associated with foreign direct investment of up to 100% in food-only retailing ventures, according to sources.
“It doesn’t make sense to sell only food either through brick-and-mortar or through online,” said a person familiar with Walmart’s plans. “With all those riders, it is even harder to do it.” Walmart’s strategy is in contrast to arch rival Amazon, which received government approval last year for a fully owned food retailing subsidiary that the Seattle-based ecommerce behemoth is yet to start. Amazon’s plans hit a hurdle after the government asked it to keep separate equipment, machinery and warehouses for the food products business and not to mix or share anything with its flagship marketplace business Amazon.in.
Walmart has always maintained that a food-only brick-and-mortar venture doesn’t make business sense because of the wafer-thin margins.
“Walmart would rather handle the back-end of the food and grocery and that will help it escape the scrutiny and riders associated with food FDI retailing,” the source said.
A spokesperson for Walmart declined to comment.
A company like Walmart is not in a rush because it is in India for the long term, according to Devangshu Dutta , chief executive officer of retail consultant Third Eyesight.
“They are looking at India as a longterm game — if it may not happen now, it will happen two years down the line when the regulations become friendly,” he said. “If you are in for the long haul, you are not in a rush as the window of opportunity is not closing.”
India created the food-retailing segment in 2016, allowing full ownership by overseas companies in ventures that could sell locally produced and packaged food items through offline and online channels. However, it set riders for applicants such as keeping logistics, manpower, accounting and offices, among others, at arm’s length from their existing ecommerce marketplaces. India also permits 100% foreign capital in online marketplaces, which can only be offered as platforms for other vendors and retailers to do business.
The government had banked on global retail giants such as Walmart and Tesco to lap up the new investment opportunity in food retailing, especially after the 2012 policy allowing 51% FDI in multibrand retailing remained a virtual nonstarter due to stiff riders.
While most global bigwigs shied away from investing in the high-profile foodonly retail ventures, Amazon appeared as a saviour in February last year, when it applied to invest $500 million through this route.
Amazon has now sought a clarification from the Department of Industrial Policy and Promotion on whether it can share some of its warehouse staff, entry and exit doors at warehouses, barcode machines, trollies, pallets and other logistical paraphernalia for its food-only venture with the existing infrastructure of Amazon.in, ET reported in April.
It has also asked the department if it can maintain the segregation “virtually.”
A top foreign retail consultant said Walmart would rather wait until India allows such ventures to sell non-food items like soaps, toothpastes and personal care items to make the business viable for store operators.