Flipkart plans an aggressive grocery foray

Grocery bills are set to shrink in India’s top metros as Flipkart prepares to take on well-entrenched rivals in the high-stakes category including Amazon India, BigBasket and Grofers within days of its $16-billion acquisition by Walmart.

The online retailer aims to launch grocery services in five cities by July, according to two people familiar with its plans, beginning with Hyderabad and followed by Chennai, Mumbai, Delhi-NCR and Pune.

In Bengaluru, where Flipkart launched grocery services in November, the company is looking to venture into the so-called ‘fresh’ category comprising fruits and vegetables.

“Flipkart wants to capture the customers that shop for groceries in the first 10 days (of a month), who make up 60% of the customer base,” one of them said. “It wants to expand its customer base through these low-ticket yet high-frequency purchases.”

Flipkart is expected to offer steep price cuts on groceries at the beginning and end of each month, taking on similar offerings by Amazon India and BigBasket with discounts of 25-50% on groceries.

“We are looking to solve consumer needs in (the grocery) category. That’s the first step, and we will build the category through the course of the year,” a Flipkart spokeswoman told.

Flipkart CEO Kalyan Krishnamurthy had said in an interview earlier this year that Flipkart was focused on increasing its monthly active transacting customers as its key metric.

“Grocery is 95% unorganised retail and no player has really been able to crack the online grocery model in a sustainable fashion that explodes the market,” said Anup Jain, managing partner of retail consulting firm Redback Advisory Services. “The challenge for any new player is to make the unpenetrated users shift their habit to ordering online versus grabbing market share from existing e-grocery players.”

Flipkart quietly rolled out its grocery category, under a tab called Supermart, in Bengaluru in November. As per industry estimates, it handles 200-300 orders daily in Bengaluru on normal days, and up to 2,000 a day when it ran special offers.

Flipkart has set up a warehouse near Whitefield in Bengaluru and has a capacity to handle 3,000 orders a day in the city.

Amazon Now, the company’s hyper-local model operational in four cities, registers more than 2,000 daily orders in Bengaluru, according to industry estimates.

On the other hand, BigBasket and Grofers, the country’s two largest online grocers, recently raised capital, intensifying competition. While Grofers raised $60 million in funding led by SoftBank in March, BigBasket secured about $220 million in a round led by Alibaba. BigBasket is also working closely with Paytm Mall, which also counts Alibaba as a strategic investor.

Amazon, which has committed $500 million to its food retail venture in India, has been investing heavily in its grocery business. The company added 15 new fulfilment centres, or warehouses, in February to create a specialised network for its Amazon Now hyper-local grocery delivery business.

However, with Walmart stepping in with its expertise in grocery and fast-moving consumer goods, Flipkart, which hopes to garner more customers and stickiness, will push this category forward. But this is likely to take time as the transaction could take a few more months to close.

Source : http://www.groceryncart.com/blog/flipkart-plans-aggressive-grocery-foray/

Why Walmart Is So Eager to Win Your Online Grocery Business

Fresh off a successful push into online grocery pickup, the country’s biggest retailer is taking things to the next level. Walmart (NYSE:WMT) is rolling out a grocery delivery service over the next few months that will allow almost half of the U.S. population to have their food orders brought right to their homes.
It’s an expensive strategy that’s likely to hurt profitability in both the short and long term. But Walmart is happy to accept slightly lower earnings in exchange for the sales boost the move should provide.
Let’s take a closer look.

Going for growth

Walmart already has a pickup option for digital grocery store orders at about 1,000 of its retailing locations and is set to double that footprint by the end of the year. In addition, delivery functionality is rolling out right now, with plans for the service to reach 800 stores by 2019. That would put 40% of the population within reach of a Walmart grocery delivery over the next few months.
Market-share defense plays a role in this move, since peers like Kroger (NYSE:KR) are making similar moves into delivery. Amazon.com (NASDAQ:AMZN), meanwhile, is using its Whole Foods locations to dramatically scale up its presence in the market.
Walmart says this move is about offense, too, since customers who shop through its online channels tend to be more valuable to the business.
They buy about twice as much as shoppers who limit their spending to in-store purchases, management estimates. These tech-savvy customers also end up shelling out more money at stores once they become e-commerce clients, Walmart has noticed.

Image source: Getty Images.

Its latest results back up those claims. Walmart’s 33% e-commerce spike last quarter significantly lifted sales at existing locations. These comparable-store sales gains would have been 1.1% but landed at 2.1%, thanks mainly to strength in home delivery and online grocery orders. Customer traffic trends held up well, too.

Not a win-win

The digital transformation strategy has some major drawbacks, mainly revolving around costs. Walmart revealed another decline in profitability last quarter that was driven by the extra e-commerce transportation expenses, for example. Spending also rose as the retailer built out its online selling infrastructure. Overall, operating income fell 3% in the U.S. market, which pushed operating profit lower.
Walmart has plenty of company here. Target (NYSE:TGT) and Kroger have both warned investors in recent quarters that they should expect profitability to decline as their businesses shift more toward online sales. All three retailers have announced big reductions in operating margin in the past two years, even though sales volumes and customer traffic levels have been positive.

WMT Operating Margin (TTM) data by YCharts.

Like its rivals, Walmart believes the profit slump will stabilize soon before a modest recovery starts. As support for this outlook, executives like to point out how enthusiastically people are flocking to digital options like in-store pickup and delivery. “Customers love to have choices in how they shop,” CEO Doug McMillon said in a recent conference call, “and we’re positioning to serve them well.”
Catering to shopper demands is the right long-term choice for Walmart, and it’s a big reason why the company is aggressively expanding into grocery delivery. The trouble is that rivals are all racing into the niche, too. That fact, combined with the tough economics around fulfilling low-margin food orders, suggests Walmart’s dominant market position won’t protect it from a continued profitability pinch as its grocery service rolls out nationwide.

Source :  http://www.groceryncart.com/blog/walmart-eager-win-online-grocery-business/

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