Flipkart takes a leaf out of Amazon playbook, bets big on groceries
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Bengaluru: In October 2016, Flipkart co-founder Binny Bansal ridiculed arch-rival Amazon India during the festive season sale, indicating that Amazon’s claims of record unit sales were empty as it had sold large quantities of “churan (a digestive aid), hing (asafoetida) ” and other trifles.
Now, Flipkart’s new chief executive Kalyan Krishnamurthy is betting big on groceries, hoping that sales of everyday household items will keep shoppers coming back to the company’s platform, at a time when e-commerce firms are struggling to expand the online retail market.
Krishnamurthy has brought back two executives, Manish Kumar and Nitin Rajput, to help launch the new category, three people familiar with the matter said. After leaving Flipkart separately, Kumar and Rajput had teamed up last year to launch a hyperlocal start-up but they have folded their venture and re-joined Flipkart to drive the groceries category, the people cited above said.
Kumar is leading the groceries business, they added.
India’s largest online retailer plans to launch private brands as part of its push into groceries, the people said. It is considering introducing its own brand of pulses and other groceries in segments where brands are scarce and margins relatively high, said the people.
Mint could not ascertain whether Flipkart will launch a separate app for groceries or whether the category will be integrated into the marketplace’s main mobile app.
Flipkart declined to comment on the matter.
In an interview on 2 November, Flipkart’s then CEO Binny Bansal said that the company was “doing some experiments” when asked about the entry into packaged consumer products. “I wouldn’t say these (experiments) are launches. I think it’s very important to figure out the right, sustainable business model for the categories,” he had said.
In January, former e-kart head Saikiran Krishnamurthy said Ekart, Flipkart’s logistics arm, would expand into hyperlocal deliveries, including food.
Flipkart in January changed its CEO for the second time in one year, replacing Binny Bansal with Kalyan Krishnamurthy; Binny Bansal became Group CEO. Krishnamurthy returned to Flipkart last June in an emergency measure taken by the online retailer’s board, which was fretting over declining sales at the company even as arch-rival Amazon India closed in.
After his return as sales head in June, Kalyan Krishnamurthy engineered a turnaround at Flipkart that saw the company outsell Amazon in the key festive season battle.
To sustain the turnaround, Flipkart needs to find new categories to boost sales growth and Krishnamurthy has identified groceries as one of those categories, the people cited above said.
But groceries are unlikely to be a magnet for new users, the lack of whom has been the core problem facing India’s largest e-commerce firms, say analysts. Since the beginning of 2016, the number of online shoppers has barely budged, leading to a sharp fall in growth of the online retail market last year, they add.
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Most Indians, even those in the top cities, continue to buy everyday items at offline stores, the analysts said. Moreover, they pointed out that managing the entire supply chain for groceries—from the farm to the consumer—is an extremely challenging business for retailers.
“There are two things that attract e-commerce firms to groceries: firstly, because of the volume and the scale you get. Everybody buys groceries. And secondly, by launching your own private labels, you get to make high margins from everyday items such as cereals, pulses, fruits and vegetables. But managing the entire supply chain is a different story altogether—it’s a huge task, and companies like Flipkart and Amazon will find it extremely difficult to crack,” said Harminder Sahni, managing director at Wazir Advisors.
“We saw this with supermarket chains during the last decade and all of them struggled to manage the logistics and costs involved and (many) eventually had to sell off to Kishore Biyani (founder of Future Group),” added Sahni.
The current push into groceries is Flipkart’s second attempt in the space.
In October 2015, Flipkart had launched a separate groceries ordering app called Nearby, promising to deliver fruits, vegetables, soaps and other staples from supermarkets to customers within an hour of receiving an order. Nearby failed to take off and Flipkart closed the business a few months later in February 2016.
In the same month, rival Amazon India introduced its grocery ordering app Amazon Now in Bengaluru. The app is now available in four cities.