Walmart is expected to pump in couple of billion dollars into Flipkart’s business once it acquires the Indian e-commerce company which, analysts believe, could also prompt Amazon to bring in fresh investments.

Analysts say that Amazon will now have some real competition once the $500-billion Walmart enters the fray and there is a good possibility that the $20-billion e-commerce market which is growing at about 30 per cent might see the market growing at a much faster pace.

Amazon India, sources said, could pour in additional funds though it may not do so immediately. Walmart might have to do so much earlier as Flipkart is again hungry for a fresh round of funding as over one-third of the total funding that SoftBank poured in were used up to acquire stake from the existing investors.

SoftBank’s Vision Fund

SoftBank’s $100-billion Vision Fund (SVF), which had according to various sources, invested about $2.5 billion into Flipkart in August last year, had earmarked $817 million for the buyback of shares from existing investors and former and current employees. The investment from SoftBank was a combination of direct funding of over $1.5 billion into the e-commerce major, termed as primary investment, and purchase of shares from the existing investors, termed as secondary investment.

Flipkart has already announced plans to set up a 100-acre logistics park near Bengaluru for which it will need funds immediately if it is to get anywhere near the 62 fulfilment centres that Amazon has. At last count, Flipkart had about 21 fulfilment centres. Amazon is expected to announce more number of fulfilment centres this week. The land acquisition alone could cost Flipkart about ₹200 crore. While Amazon has welcomed Walmart’s imminent entry, an e-commerce veteran K Vaitheeswaran, co-founder of India’s first e-commerce company Indiaplaza.com, said it does not make business sense for Walmart to sink in $10-12 billion to address just 3 per cent of India’s retail market that is online and ignore the 97 per cent, when it could create an online infrastructure with about $2 billion instead.

“According to a WSJ blog in April 2016, Walmart spent $10.5 billion on technology alone in 2015 and is still way behind Amazon. When it has failed on home ground, what makes it think it can beat Amazon in India?” Vaitheeswaran, who is also the author of the best selling book on his entrepreneurship journey, Failing to Succeed , told BusinessLine . So far, the race for dominance in the Indian e-commerce market was led by sales of smart phones and fashion merchandise. But industry experts point out that the battle for pole position will now play out in the Food & Groceries category.

“The $20-billion e-commerce market constitutes just 3 per cent of the $650-billion retail market in India. Of the $650-billion retail market, Indians spend $300-$350 billion on Food & Groceries, which is nearly half the size of the retail market. While smartphones and fashion bring in the GMV numbers it is a nightmare to make money on them with wafer thin margins, returns and huge cash burn towards customer acquisitions. However, Food & Groceries can bring in 30-40 per cent margins, if sourced directly from farmers,” said Arvind Singhal, CMD of management consulting firm, Technopak Advisors.

Having perfected its frugal but efficient business model of ‘Every Day Low Prices’ around the world, including in India where it runs a ₹5,000-crore wholesale cash and carry business with 21 stores across nine States, Walmart with its 11,700 stores under 59 banners in 28 countries seems well positioned to lift Flipkart’s experiments with Food & Groceries to the next level, to take on Amazon’s lead in the category with its Amazon Pantry and Amazon Now.

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