With Flipkart all set to slip out of its hands, Amazon may have to reset its growth and profitability targets.
The Jeff Bezos-led e-tailer will have to contend with near term and long term challenges in the areas of product pricing, customer loyalty and seller attrition as it prepares to take on Walmart, the $500-billion retailer, on foreign turf.
Had Amazon made a bid for Flipkart much earlier than Walmart, the e-commerce scenario in the country could have played out very differently. However, Amazon has always maintained that reports about it bidding for Flipkart are purely speculative.
Pricing strategy
While Amazon entered the Food & Groceries category four years ago, which it is betting on to make it the daily, weekly, monthly shopping site of choice for Indians who spend a substantial portion of their monthly income on food, groceries and other consumables, it will have to tweak its pricing strategy to be able to match Walmart’s ‘Every Day Low Price’ (EDLP) a pricing strategy that allows Walmart to offer all customers a low price every day without doling out coupons, promotions or special discounts.
“Walmart has perfected its pricing strategy with EDLP, drastically reducing the resources required to create a never-ending cycle of promotions. It has a head-start over Amazon as it has established a presence in the India market for over a decade, pumping in billions of dollars in setting up its retail wholesale business, including a strong back-end with sourcing, procurement, logistics, merchandising, analytics and everything else required to run a large national distribution channel.
Walmart’s strong back-end and Flipkart’s front-end to customers along with its last mile delivery infrastructure in place with eKart, is a potent force that is not easy, even for Amazon to beat,” said a former Walmart veteran, on condition of anonymity.
Amazon has an Amazon Fresh offering of fresh fruits and vegetables in the US, where it is a retailer. In India, by virtue of being a marketplace, it cannot have a ‘farm to fork’ sourcing and selling model, and therefore, has not set up its supply chain for fresh fruits and vegetables. In contrast, Walmart already has it in place with a network of 21 Best Price Modern Wholesale Stores, its wholesale cash and carry business in nine Indian States and will be in a strong position to help Flipkart build out its fledgling Food & Groceries business.
“Once Walmart decides to own (lead) a category, like groceries or smartphones for instance, it will become very hard for Amazon to take the lead in that category,” said an analyst.
Pointing out that the Flipkart-Walmart combine will also unleash new pricing dynamics that Amazon will have to match or else face customer migration, as a consequence of which its customer acquisition costs will increase, the analyst said, “creation of a new, cash-rich entity (Flipkart-Walmart) which will inevitably offer attractive seller incentives will lead to seller attrition at Amazon, which will set it back.”