Finally, the moment-in-the-sun for the Indian startup ecosystem seems to be on the horizon. This week has been abuzz with talks of the biggest daddy of them all—Flipkart’s $10-billion IPO in the U.S. reportedly being on the cards with Goldman Sachs overseeing the listing.
What happens to Flipkart matters!
Flipkart stands for the first most successful India startup story. Turning Sachin Bansal and Binny Bansal into poster-boy billionaires, the Flipkart success serves as the story for every budding Indian entrepreneur. If listed, Flipkart’s IPO will be the largest on overseas exchanges by an India-based company. It will return Walmart’s investment by more than two times in two years with Flipkart’s valuation at a cool $40 billion. This will be two years earlier than the originally announced time frame of four years in 2018 by Walmart.
There is also talk of Walmart mulling Flipkart’s fintech business PhonePe’s IPO listing in 2023 at a potential $10 billion from the current $5.5 billion. PhonePe competes with Alibaba-backed Paytm and Google Pay besides others while dominating the UPI segment.
Post listing too, Walmart will still retain 57% equity in the business by divesting 25%. Walmart intends using the raised monies for further business expansion with a focus on technology to unlock further value.
In line with acquisitions being the globally proven strategy of tech firms to grow, to build assets or to keep competition at bay, the playout is happening in Indian retail too. Reliance’s 2020 acquisition book shows five companies/brands worth Rs 3,000 crore. Walmart-Flipkart is consolidating the cash-and-carry business of Flipkart wholesale and with investments in fresh produce supply player Ninjacart. While the FDI rules bar foreign retailers to own physical stores, Amazon has succeeded with some smart investment arm structuring.
The battle for India’s retail supremacy
E-commerce is one sector that has experienced a boom in a post-pandemic environment with stunning demand across all e-commerce players. The Indian e-commerce market is projected at a cool $99 billion by 2024 according to a Goldman Sachs report.
And then there is the $850-billion retail market—a large enough market for Reliance and Amazon to engage in an ownership battle for the debt-laden Future Group, India’s second-largest retailer.
The retail market is projected to grow to $1.3 trillion by 2025. At least four majors are gearing up to slog it out. Walmart-Flipkart, Amazon, Reliance and the Tata group. This week, Walmart CEO Doug McMillan announced Walmart’s plans of further investment in India’s supply chain and cold-storage with annual sourcing from India of $10 billion by 2027, tripling from the $3 billion currently. This is besides Walmart acquiring minority stakes in Aditya Birla Fashion and Arvind Brands.
The Tata group is looking at reinforcing its farm-to-fork strategy with the proposed acquisition of BigBasket, a leader in the online food and retail segment. Investments in the Indian market currently run into billions of dollars what with Walmart’s $17-billion-plus in Flipkart and Amazon’s $6.5 billion. Reliance Retail, already valued at close to $60 billion, continues to unlock value to build a war chest for large-ticket investments.
India’s stated goal of becoming a $5-trillion economy and $1-trillion digital economy is bound to drive consumption. Online retail penetration at single-digit levels allows tremendous room to grow, and hence the mad rush. That is why the retail ecosystem is witnessing massive investments to upgrade technology and user experience, besides content.
The acquisition bandwagon
In line with acquisitions being the globally proven strategy of tech firms to grow, to build assets or to keep competition at bay, the playout is happening in Indian retail too. Reliance’s 2020 acquisition book shows five companies/brands worth Rs 3,000 crore. Walmart-Flipkart is consolidating the cash-and-carry business of Flipkart wholesale and with investments in fresh produce supply player Ninjacart. While the FDI rules bar foreign retailers to own physical stores, Amazon has succeeded with some smart investment arm structuring.
Reliance’s investments extend beyond retail to encompass tech investments in AI, VR and voice recognition, to name a few. The Tata group is talking of launching a super app to make its case for digital besides proposed investments in Big Basket.
What next?
A RedSeer report lists Flipkart (including PhonePe and Myntra) as India’s top e-commerce marketplace with 66% GMV share worth $8.3 billion during the mid-October to mid-November 2020 festive period.
The online retail market is no more than 10% of total retail. With the battle lines drawn among some of the mightiest Indian and global players, the winner will be decided by the ability to succeed in all the three segments—online, offline, and B2B.
And this is where Walmart may be limited owing to FDI restrictions even as wholesale and kirana store partnerships offers a way out. It is the apparel-focus that gives Flipkart the ability to deliver profitability but grocery is the ‘necessary evil’ slice for complete retail dominance—something that Walmart does not currently seem to have a fix on.
Views are personal. The author is Executive-in-Residence at UCLA, a Stanford Seed Consultant, a global CEO coach, and a C-Suite + Start-up advisor.
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