New Delhi: The 77% Flipkart stake acquisition has led Walmart to penetrate Indian market deeper, yet the later is yet not up to take up India’s immensely opportune food retail business.
“The margin on non-food items is higher comparing to food items. With the help of that additional margin we get on food items, we are able to further bring down the prices of food items and that’s how we grow scale. But if only, food is allowed and prices are kept higher we can’t afford to continue to lose money all the time then the scale does not grow. So, that’s not the business model,” Krish Iyer, President and CEO, Walmart India said in an earlier interaction.
“World over there is certain mix of non-food that is required to make the business model work better. Once that is allowed we will go back to the drawing board to really making our plans and getting approvals from our global board etc. It will take time,” Iyer added.
Earlier Walmart India said it will consider entering into food retail business if the government allows foreign firms like Walmart to stock about 25-30% non-food items.
Non-food items such as toiletries, detergent and general household items are generally high-margin earners comparing to foodstuff.
Thus such high margin earner products help retailers to bring down prices of less profitable items like food products and create balance toward profitability.
Interestingly while Walmart India is presently in no mood to taste water in the country’s food-only retail biz, its arch rival in US and now in India, Amazon has received 100% FDI in Indian food retail biz lately. Online grocery retailer, BigBasket and Grofers too have received similar approvals.
Apparently for Walmart India, the strategy is to wait and watch until Indian retail policy allows foreign ventures to retail non-food items to make the business more sustainable.
When questioned about Walmart’s plan to serve Indian consumers after Flipkart acquisition, a spokesperson from the company said, “Through cash n carry model we will continue to serve Kiranas and source locally from farmers, SMEs etc. Flipkart will continue to function as marketplace eCom. Both will continue to remain independent entities.”