India’s Flipkart is entering the food retail business as the e-commerce giant looks to expand its reach in the nation, its chief executive said on Tuesday.
Flipkart, which sold majority stake in the company to Walmart for $16 billion last year, has registered an entity called ‘Flipkart Farmermart Pvt Ltd’ — in compliance with local laws — that will focus on food retail, said Kalyan Krishnamurthy, Flipkart Group CEO, in a statement to TechCrunch.
The extended business represents “an important part of our efforts to boost Indian agriculture as well as food processing industry in the country,” he said, adding that the company is already working with hundreds of thousands of small farmers for the business.
In a regulatory filing earlier this week, Flipkart revealed that it has authorized to invest $258 million in the new venture. Krishnamurthy said the company has secured approvals from the board to enter the food retail business.
“We’re looking forward to invest more deeply in local agri-ecosystem, supply chain and working with lakhs of small farmers, Farmer Producers Organisations (FPOs), food processing industry in India, helping multiply farmers’ income and bring affordable, quality food for millions of customers across the country,” Flipkart chief executive added.
The announcement comes as Flipkart’s chief rival Amazon begins to expand its food retail business in the country. The company has already committed to invest about $500 million in the course of next five years to build its own private label food products and engage with third-party sellers. In recent years, Amazon India has established or started Amazon Now, Prime Now, and Amazon Fresh businesses in the nation.
Food and grocery are compelling categories for e-commerce businesses as people buy their grocery and perishable supplies much more frequently than they buy office supplies and gadgets. And the opportunity is big. According to research firm Forrester, online food and grocery market remain significantly tiny, accounting for just 1% of the overall sales.
Indian laws permit e-commerce companies to sell food items directly to consumers. For other category of items, e-commerce businesses work with third-party sellers.
For Flipkart, having the backing of Walmart could prove immensely useful as it scales its food retail business. The U.S. retail giant could help Flipkart with charting out the play for how it should source and maintain the supplies and how to improve margins, the research firm said.