Only a week after lining up a deal for Asda with Sainsbury’s, US titan Walmart has made the biggest acquisition in its history with the capture of India’s Flipkart.com.

On Wednesday, Walmart revealed it was taking a 77% stake in Flipkart, India’s largest ecommerce operator, in a deal worth $16bn (£11.8bn).

Walmart has been circling the etailer for several months, and speculation about an acquisition was rife in the run-up.

The transaction brought the world’s biggest retailer majority ownership of Flipkart alongside minority investors including Chinese tech giant Tencent and Microsoft.

“For Walmart, the deal helps it establish a foothold in India’s thriving ecommerce market – a market forecast to be worth up to $200bn by 2026”

Further investors may be brought on board if they can bring relevant digital expertise to bolster competition with Amazon.

For Walmart, the deal helps it establish a foothold in India’s thriving ecommerce market – a sector worth $50bn (£36.9bn) at present, which is forecast to be worth up to $200bn (£147.6bn) by 2026.

Founded in 2007 as an online bookseller, Flipkart has grown to become India’s premier digital destination.

It holds a 31.9% share of the total ecommerce market – food and general merchandise – but its position has come under increasing threat in recent years from Amazon.

The Seattle-based online giant entered the market in 2012 and rapidly ramped up investment, identifying the country’s vast potential as a key future growth driver after it had tried and failed to gain traction in China.

As Amazon approached India it was determined that history should not repeat itself – and it has since ploughed billions of dollars into building up its operations.

It has done that so well that it now boasts 31.1% of the country’s ecommerce share.

Flipkart has watched as its early-mover dominance has been challenged, with funds being steadily depleted to counter the threat from Amazon.

In recent years, it has been heavily reliant on investor funding, making the need for a backer of substance all the more urgent.

Walmart has been present in India for several years and operates a relatively small cash-and-carry operation called Best Price Modern Wholesale.

Its progress has been hampered because of complex regulatory issues around foreign direct investment (FDI) and ownership, for which India is notorious.

Recent government relaxation of some ownership rules, particularly relating to ecommerce, opened the door to it approaching Flipkart.

Further relaxation of FDI rules related to online grocery – foreign investors can now own 100% of online food businesses – have likely made Walmart all the more determined to secure a deal.

“Reaching yesterday’s union was not without difficulty. Walmart had to deal not only with Flipkart, but also its numerous large and small investors, not all of whom were receptive to the idea”

Walmart’s courtship of the etailer was a prolonged affair, and suggestions that a deal might be struck have done the rounds for at least the last two years.

From January, the industry chatter indicated that the two parties were steadily moving ever closer.

But reaching yesterday’s union was not without difficulty. Walmart had to deal not only with Flipkart, but also its numerous large and small investors, not all of whom were receptive to the idea.

Only last week, for example, a story hit the wires that Amazon might gazump its great rival with a bigger counter-bid. That seemed unlikely and several observers saw the talk as an effort to inflate the sale price.

What next for Walmart?

Now that Walmart has made its biggest M&A move ever, the stage is set for a head-to-head battle between the largest US retail giants for online supremacy in one of the world’s fastest-growing ecommerce markets – a tussle made even more intriguing by the presence of Alibaba, via its controlling stake in India’s leading online grocer BigBasket.

The deal is, of course, subject to regulatory approval, but that should not present a barrier.

Walmart is making the right noises about ramping up local sourcing and funding rural farming initiatives, which is music to the ears of highly protectionist politicians instinctively suspicious of multinationals seeking to tap the market.

Walmart is likely to make good on its promises. In fact, it has little choice if it is to use Flipkart to roll out a major grocery operation in the country.

Flipkart has only recently rebooted its own e-grocery business, having launched then quickly abandoned such a service in 2016.

Flipkart is also banking on a wide-ranging idea exchange between it and its new partner. That will involve everything from big data shopper analytics to marketing expertise.

The initial $2bn (£1.5bn) investment promised by Walmart will likely be aimed at rapidly building a logistics infrastructure capable of supporting large-scale grocery. Cold supply chain is, unsurprisingly, one of the biggest challenges in the Indian market.

“Flipkart is also banking on a wide-ranging idea exchange between it and its new partner. That will involve everything from big data shopper analytics to marketing expertise”

In that respect, it is worth noting the involvement of Chinese tech giant Tencent (which operates the WeChat social/payment app), as well as possible participation from Google parent Alphabet somewhere down the line.

In the long term, Walmart could support an IPO of the new-look Flipkart, so it will be interesting to see what the business that finally lists will look like.

As Retail Week outlined after the Asda-Sainsbury’s deal, Walmart has a new focus now – tomorrow’s digital markets.

Now it has its prize in India, the retail industry can expect a glimpse of how markets of the future might look, very soon.

Walmart’s worldwide retail web

  • Walmart operates more than 11,700 stores under 65 fascias in 28 countries. 
  • The US is by far its biggest business, with 5,358 shops operating under its eponymous and Sam’s Club banners. Its homeland contributes the lion’s share of Walmart’s sales – $398.7bn (£293.1bn) in 2017 – far outstripping its next-biggest operational market, the UK, where it raked in $30.6bn (£22.5m) last year.
  • With Walmart soon to scale back its interest in Britain, Mexico will soon emerge as its number-two market. The Latin American nation pulled in the same level of sales as its Canadian business ($26.2bn) in 2017, but is forecast to reach $39.5bn by 2022 as Walmex invests in stores and online initiatives.
  • China ranks fifth at present, but remains a key target market via its close collaboration with etailer JD.com, unlike sixth-ranked Brazil where a drastic scaling-back is expected soon.
  • The fate of its other South American operations in Chile and Argentina remains uncertain, with the latter’s ongoing economic instability, in particular, diminishing its attractiveness by the week.
  • Similar doubts surround its African business, which has struggled to gain traction since Walmart took a majority stake in South Africa’s Massmart in 2011. Massmart has operations in 10 other African nations, but eventual exit seems likely.
  • Walmart’s other overseas business of note is Japan, where it has owned a controlling stake in the Seiyu chain since 2005. Having recently unveiled a grocery ecommerce partnership with leading online operator Rakuten, it seems unlikely that Walmart will give up on the market, which contributed sales of $8.2bn in 2017, any time soon.