Inside Flipkart’s plan to diversify

US retail behemoth Walmart-owned Flipkart last year acquired Cleartrip, one of the country’s oldest travel booking portals, looking to diversify beyond its core e-commerce marketplace businesses. Travel is not Flipkart’s sole new bet. In the last two years, it has ventured into many new frontiers—health, social commerce platform Shopsy, re-commerce—and inked multiple acquisitions. “Re-commerce” or reverse commerce is the selling of previously owned and used products. It also launched Flipkart Labs to tap into Web3, metaverse and NFT-related use cases for e-commerce.

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In 2022, Flipkart acquired direct-to-consumer (D2C) SaaS platform ANS Commerce that helps brands sell online and electronics refurbishment platform Yaantra. Last year, besides Cleartrip, it bought a majority stake in e-pharmacy Sastasundar Marketplace. The spate of mergers and acquisitions, and new business bets, analysts say, are aimed at creating new revenue pools, and expanding its customer base.

“We want to give more reasons to consumers to keep coming back to Flipkart. By offering pharmacy products, value fashion or travel, we give them new reasons to come to us,” Kalyan Krishnamurthy, group chief executive officer of Flipkart, said in an interview to Mint. “We don’t launch a new business thinking it will add revenue the very next year. But we are very confident that the revenue will continue to come,” he said.

The growth initiatives and continued investments come at a time when Flipkart has seen revenues rising, but also losses piling up. Flipkart’s (B2C) marketplace arm Flipkart Internet Pvt Ltd posted a net loss of ₹4,362 crore in 2021-22, up 51% compared to the preceding year. Its revenue jumped 36% to ₹10,659 crore during the period. Its ad revenue grew 50% to ₹2,083 crore, with the Indian company being the top contributor to parent Walmart’s ad revenue globally. Revenue from marketplace services remained largely flat at ₹2,823 crore.

Meanwhile, Flipkart India Pvt Ltd saw revenue jump 34.5% to ₹51,176 crore in FY22. Losses widened by nearly 40% to ₹3,404 crore during the period. Flipkart India Pvt Ltd is the company’s business-to-business wholesale arm. In 2020, Flipkart took over Walmart India, which operates the Best Price cash-and-carry wholesale stores. The acquisition brought Walmart’s entire portfolio in India under the Flipkart group, two years after it bought a majority stake in the homegrown e-tailer for $16 billion.

Flipkart spent about $1.1 billion from 1 February to 31 July, according to Walmart’s regulatory filings in the US, on mergers and acquisitions (M&A), capital expenditure, working capital requirements for itself, for fashion portal Myntra and payments firm PhonePe, among others. It also includes investment in its supply chain as well as data centres. Krishnamurthy said new businesses demand more funding to scale, and that’s where a good part of its investments would continue to go to.

Flipkart has taken big bets in the past. The acquisitions of Myntra and PhonePe are success stories. Analysts believe that some of its new bets run risks of failure, and that the path to profit remains unclear since it will need to invest significantly in the new businesses. But the rewards are likely to be immense if they work out. So, can Flipkart repeat its success with Myntra and PhonePe?

New frontiers

Flipkart has to grow its business beyond smartphones and fashion, and increase the number of active customers. They are a bit late to healthcare. Travel and grocery are dominated by large players, and nothing is at scale now. So we have to see how they make a dent in these categories,” said independent consultant Satish Meena. The bigger worry might be adding new buyers, and whether they will be spending across categories, Meena argues. “It will be fighting aggressively with Amazon and Meesho in the low-value category. In healthcare, investing in and building a last-mile delivery network will be very important,” he says.

Flipkart’s plan for healthcare is to build a marketplace that offers online pharmacy, diagnostics, and consultation. It may partner with a pan-India diagnostic chain to accelerate expansion. “From books, consumer electronics to branded fashion and appliances, we created customized experiences for categories we entered. We will be able to do that for healthcare as well,” said Krishnamurthy.

Social commerce platform Shopsy is aimed at new e-commerce customers, with a zero commission, low-cost marketplace model. It plays to Flipkart’s strengths, and has the potential to become big, analysts say. Just a year after its launch, it crossed 100 million users in September. As it tries to bring the next 100 million fence-sitters to the platform, Flipkart is also trying to keep the costs low. “E-commerce is still an underpenetrated space for the Shopsy cohort, which is a massive opportunity. We have already broken even and are making money per transaction,” said Adarsh Menon, senior vice-president and head of new businesses, Flipkart.

With the rebound in travel, Cleartrip’s market share has seen a sharp spike. Menon says while there are clear commmercial metrics that the business will work towards, including topline, market share, proftability, the immediate objectives for the coming year are offering value, customer experience and innovation.

But after a busy year of funding new ambitions, controlling costs and achieving scale will be a tightrope walk.

The grocery challenge

Flipkart forayed into grocery in 2018, but it has been a significant bet only in the last two years. Flipkart Quick, a fresh grocery delivery service, is operational only in a couple of cities. Flipkart Supermart currently focuses on next-day deliveries, and serves over 1,800 cities and across 10,000 pincodes.

But in India’s multi-player and highly competitive online grocery market, Flipkart and Amazon are only at the starting line. The segment is led by Tata-backed BigBasket. Quick commerce has been a hit-and-miss for most companies, and so e-grocery operators are recalibrating strategies and trying to see which model works best.

Flipkart Supermart is now planning to pilot fresh fruits and vegetables, a key part of a customer’s grocery basket. For fresh grocery, it may explore faster delivery schedules—maybe a 2–6-hour time model. For dry grocery, though, it will stick to next-day delivery. “In the last year, the grocery business has grown three times. We have had our fair share of bets in grocery, some of which failed and some succeeded. Value is what customers want. The trade-off would be that customers would get the product next day instead of getting it in a few hours,” said Smrithi Ravichandran, vice-president and head of grocery, Flipkart. The country’s online grocery market is pegged at $5.5 billion in 2021, according to Redseer Strategy Consultants, and expected to soar to $21 billion by 2025. “…Given their large customer base, huge warehouse/logistics investments, the huge opportunity that grocery sector provides, it makes sense for Flipkart and Amazon to scale up in grocery,” said K. Ganesh, serial entrepreneur and promoter of BigBasket, Portea Medical, HomeLane, and BlueStone.

The rivals

In a predominantly three-player market—Amazon, Flipkart and Reliance’s JioMart—a September 2022 report by brokerage firm Bernstein estimated that at present, Flipkart leads the Indian e-commerce market with a gross merchandise value (GMV) of $23 billion in 2021, Amazon is the second-biggest player with $18-20 billion of gross merchandise value last year and Reliance comes next with $4.6 billion of e-commerce sales. GMV is the total value of all goods and services sold.

According to Bernstein, even after making investments of $6.5 billion in India over the last eight years, profitability remains elusive for Amazon India.

Both Flipkart and Amazon have ventured into so-called non-core businesses, where they saw an opportunity to expand their customer base. Not all of those forays have been successful.

In November, Amazon India said it is winding down its food delivery business, exiting its Amazon Academy online learning platform and discontinuing Amazon Distribution, a wholesale ecommerce website available to kiranas in Bengaluru, Mysore and Hubli. Amazon is also relooking at its e-pharmacy business, and testing its viability, said a person familiar with the matter.

With Amazon, the problem was stiff competition in edtech and food delivery, and lack of commitment of further capital investments globally.

In the middle of a funding winter and a looming global recession, Flipkart, too, says it will slow down on the M&A front. “We have cut down on new hiring in the last few months in a pretty big way. The focus is to ensure that our existing employee base is well-served. For a company of the complexity and scale as ours, we have a long-term design and strategy. We are trying to be prudent and responsible in these times,” said Krishnamurthy.

Both Flipkart and Amazon, which operate large supply chains and made huge investments in building logistics networks, are leveraging their infrastructure to offer services externally, creating new revenue pools. By the year-end, Flipkart, which has a 20 million sq ft warehouse footprint and over 100 fulfillment centers, will be offering warehousing space where other companies can stock inventory. Its logistics arm eKart earlier said it will offer end-to-end supply chain services to D2C brands, ecommerce platforms and small and medium businesses. From 10-12 clients, it has 80 brands and companies which it services.

“Our ambition is to be a fourth-party logistics (4PL) provider, where we manage the entire supply chain process of a company. As we get additional businesses, the utilization and revenue contribution will improve. In a capital-intensive industry, these will help in moving towards the right cost structure,” said Hemant Badri, senior vice-president- supply chain and customer experience, Flipkart. Alongside, it is also looking to ramp up Jeeves in the coming year, which offers post-purchase solutions in the B2B services space, for electronics and appliances.

Despite the macro-economic headwinds, Bernstein expects the Indian e-commerce market to grow at an annual rate of 30% to reach $130 billion by 2025, with online shoppers projected to increase to 300 million.

“The objective of e-commerce firms like Flipkart or Amazon would be to catch on to the propensity of customers to stick to a single platform. Diversification is necessary because the cost of acquiring customers is high. Having multiple touch points within your website increases the average basket size. But companies will now need to sweat out the acquisitions made and start looking at profitability,” said Naveen Malpani, partner at Grant Thornton Bharat.

IPO and profitability

Flipkart parent Walmart in June said it is confident Flipkart will hit profitability, and its initial public offer (IPO) will happen when the time is right.

However, choppy global markets and macro-economic headwinds have put the IPO plans on hold. “When one is in growth and investment mode, getting into new categories, one has to weigh both sides. When you are able to raise money in the private markets at a good price and there are other liquidity mechanisms, do you really want to go for an IPO? At this stage, we don’t think that’s necessary for us,” Krishnamurthy said.

In July 2021, Flipkart raised $3.6 billion from external investors, along with its largest shareholder Walmart, at a valuation of $37.6 billion. In 2020, it had raised $1.2 billion led by Walmart at a $24.9 billion valuation.

Mint reported in October that Flipkart is considering raising $2-3 billion at a valuation of over $40 billion. Walmart had acquired it in 2018, valuing it at $22 billion then.

Krishnamurthy said, as of today, the company is not in the market to raise funds. “…But we are always talking to investors in the market,” he said.

Analysts say it won’t be tough for Flipkart to raise capital at an increased valuation, given its execution and growth trajectory. However, given the kind of investments it has made in recent years, and will continue to make to scale up the new businesses, there is no clear visibility on profitability.