Flipkart: Pathway to category

leadership in Grocery
 B.V. Sai Praveen Chakravarthy
Team Analytics Aces Dual Degree – Chemical Engineering, IIT Kharagpur

Work Exp: Consultant-I, Data Analytics Strategy Team, EXL Services

Internships: Reliance Industries Limited | Hindalco Industries Limited

Roll No: 0478/58; Mob: 9932439235; Email id: praveenc2023@email.iimcal.ac.in

Katha Sowmya Reddy

B.Tech – Chemical Engineering, IIT Roorkee

Work Exp: Technical Analyst, Citi

Internships: Business Developer-Digiproton | Product Marketing – Log 9 materials

Roll No: 0473/58, Mob: 7060334541; Email id: sowmyar2023@email.iimcal.ac.in

Jyothirmayee Kotni

B.Com – Osmania University

Work Exp: CA , Wipro Finance

Internships: VSK &

Associates

Roll No: 0459/58, Mob:

8217873773; Email id:
KEY HIGHLIGHTS – INDIAN E-GROCERY
Overview – Flipkart's play in e-Grocery
MARKET
• Market size: ~$3 B (CY20 - 30x growth in last 8 yrs); $18 B by CY24 (59% CAGR) • Launch: Started operations in 2018
• Market penetration: ~0.3% (lower than China/UK/US – 6%/4%/8%) • GMV: ~$250 M (CY20 – Est.); Ambitions to reach $1 B in coming
• COVID impact: CY20 monthly exit run-rate ~ 2x of Jan'20 GMV; 3x rise in AOV years
• Customer view: Grocery purchases generally happen at household level • Service offerings: Flipkart currently operating under 2 models -
– # households: 130M (out of 154 online transacting households in CY20) using • Supermart (SM) – Next day delivery using inventory model
e-Grocery platforms or willing to try; ~$293B addressable market • Flipkart Quick – 90 mins delivery with hyperlocal model
– Geo. distr: >55% of this TAM beyond Tier II cities with low coverage so far • Comparison with key players:
– Profiles: 65% value first households; Remaining are convenience first Details Big Basket Grofers Amazon Flipkart JioMart

Details Value first Convenience first Launch 2011 2013 2016 2018 (SM) 2019
year 2020 (Quick)
Avg. income ($) 7k 16k
Mkt. share 30% 15% 18% 6% 4%
Key purchasing Lowest prices Wide assortment
criteria City 35 27+ 300 (Pantry) 5 (SM) ~200
presence 9 (Fresh) 1 (Quick)
Discounts Availability in one place
Daily orders 2.2L+ 1.5L+ 1.5L+ 70k+ 2.5L+
Easy returns/exchange Low waiting time
AOV (INR) 1750 1450 1000 1100 500
Quality/hygiene Quality/hygiene
Biz. model Inventory Hyperlocal + Hyperlocal + Hyperlocal + Inventory
Purchase Buy groceries in bulk; Prefer to top up basket as per Inventory Inventory Inventory
Sometimes defer purchases to needs from places with desired
behavior get best deals assortment and low hassle Fulfillment Darkstores (DS) Retail tieups+ Retail tieups+ Retail tieups+ Reliance brick
model + Warehouses WH + DS WH WH + DS & mortar
(WH) stores
– Winning formula: High discounts, variety and quality (of products + service)

• Categories: Fresh food (15%); Packaged food & beverages (60%); Non-food (25%) This document provides an outline of 7 key recommendations for Flipkart to
establish category leadership in Grocery (with focus on boosting GMV)

Grocery GMV is driven by multiple factors –

Impact on individual levers and estimated
effectiveness (impact vs. effort) presented for
each recommendation Gross Merchandise No. of transacting Order frequency per Items per order Price per item
Value (GMV) customers (DAU/MAU) customer

1
BOOST B2B GROCERY PLAY THROUGH
FLIPKART WHOLESALE
GMV levers impacted: Effectiveness:
• Market size: ~$60 B revenue opportunity from B2B e-commerce (est. CY20)
• Growth: By 2025, opportunity ~7x that of B2C online grocery market
• AOV: Higher AOVs (~30x B2C) and lower B2B warehousing and logistics costs
(3% of GMV compared to 8% of GMV for B2C) leads to 5x unit level profitability
• Main segments: include Kirana stores (~12-14 M across India), HoReCa (Hotels,
Restaurants and Cafeterias) and O&I (Offices and Institutions)
• Key drivers for boosting B2B e-grocery includes (apart from COVID impact):
– Retailer willingness to adopt new tech in face of online threat
– Increasing formalization along with regulatory reforms such as GST & CST
– Increasing compliance cost for small offline wholesalers; Inc. labor cost
• Flipkart's existing play:
– Flipkart Wholesale introduced in Aug'20; Currently serves 23 cities but
started grocery category only in NCR
– Acquiring 100% stake in Walmart India, which operates 29 Best Price Cash
& Carry stores with 1.5 M businesses as customers
• Competition: Intense from Metro Cash & Carry, Udaan, Amazon B2B &
Jiomart
Strategic considerations & key
enablers
Boost penetration in this space
through:
• Geo. Expansion: Initially across rest of regions in 9
states with Best Price stores and then to other high
demand generating areas
• Attractive credit solutions: Offer credit services (e.g.,
short term collateral free loans, working capital loans)
• Aspirational loyalty program: Introduce attractive
rewards program for developing a loyal retailer base,
locking in repeat and higher AOV purchases
• Extensive product catalogue: Large SKU assortment
through tie-ups with manufacturers (especially with
local brands)
• Strategic marketing: Leverage Best Price customer
base for targeted promos to boost online service
adoption
• Strategic partnerships: Leverage ties with Ninjacart
for improved supply chain control
Key enablers
• Robust supply chain network to drive efficient and
error-free execution
• Efficient credit risk management solutions to cutdown
on seepages
2
LAYOUT ASPIRATIONAL AND FEATURE RICH
B2B & B2C LOYALTY PROGRAMS, WITH
CUSTOMER AT CORE
GMV levers impacted:
• Reconfiguring existing loyalty program and driving adoption important:
• Successful loyalty program members spend 2x of lookalike non-members
• Optimal combination of loyalty levers can create a rewarding customer
experience and drive sales of loyalty members by an additional 20%
• Comparison of e-Grocery players' loyalty program: Flipkart lagging
Player Loyalty membership benefits
Big Basket Access to priority slots; Members exclusive offers & discounts; No
delivery fee above INR 600
Grofers Wholesale prices; Member exclusive offers & priority support
Amazon Pantry Delivery fee benefit; Early access to deals
Supermart Early access to deals; 4 supercoins earned per INR 100 spend
JioMart 1 point for every INR 200 spent; Value of 1 point = INR 0.7
• Key design dimensions for an effective loyalty program:
– Simple: Seamless customer onboarding process
– Functionalities: Platform feature depth with dynamic reward accretion
– Flexible: Flexibility in earn/burn across partner member network
– Differentiated engagement: Customer tierization with personalized rewards
– Experiential: Integration of gamification elements into loyalty strategy
Strategic considerations & key
enablers
Revamp B2C loyalty program (Flipkart Plus):
Effectiveness:
• Tiered structure: Premium customer tiers basis
annual spend, with special rewards (e.g., free
products/services) to boost customer aspiration
• Differentiated earn: Differentiated reward structure
basis situational information (e.g., weather, festivals)
and on purchase of specific SKUs
• Omnichannel loyalty program: Reward customers
based on transactions across all channels (i.e., in-
Annual Membership fee store at Walmart, Supermart, Quick etc.)
INR 600 • Personalized offers: Customized offers & rewards
basis basket composition & size (e.g., purchase bread
INR 449 and get discounts on jam)
INR 999
• Gamification: Create a digital leaderboard with user
ranking by spend, for improved customer
INR 999/200 SC in 1 yr.
engagement
Free
Layout new B2B loyalty program (Flipkart ClubCard):
Apart from the existing and above features, a few
augmentations are necessary to boost program success
• Enrolment: Onboard businesses into loyalty
program
for free
• Value added services and products: Attractive credit
solutions and services such as health insurance at
discounted prices for owner and staff; Free doctor
3
INCREASE MARGIN ACCRETIVE PRIVATE Strategic considerations & key
LABEL PORTFOLIO ACROSS CATEGORIES enablers
GMV levers impacted: Effectiveness: Drive GMV through private labels by:

• Share of Private Labels: 40% GMV share from private labels for e-Grocery • Private labels in key categories: Prioritize portfolio
players (CY20); To increase to 45% by CY22 development in packaged food & beverage category
• Comparison of e-Grocery players' portfolio of private labels: Flipkart (~60% GMV share) such as snacks & biscuits, frozen
lagging
Categories Big Basket Grofers Amazon Supermart food etc., followed by Non-food items (~25%) including
cleaning essentials, personal care items and plastics
Fruits & Vegs. Fresho G Fresh - -
• Consideration of regional preferences: Given the
Foodgrains, oils & Popular, Royal, Fresho Mother's choice, Happy Vedaka Flipkart Supermart diversity of Indian market, Flipkart can develop
spices Organic, Good Diet Day
private labels based on regional preferences, which
Bakery & Dairy Fresho, Fresho Organic Happy Day - - are often overlooked by larger brands
Beverages Royal Happy Day - Flipkart Supermart • Targeting the untapped market: By leveraging
insights from platform data, Flipkart can introduce
Snacks Royal, Good Diet Havemore, Happy Day Solimo -
unique products with high demand from untapped
Cleaning and HH Home Happy Home, Savemore Presto - segments
Eggs, Meat, & Fish Fresho, Signature - - - • Strategic partnerships: Leverage ties with Ninjacart
for certain degree of backward integrations to
Healthy Food Royal Organic, Good Diet Mother's choice Solimo, Vedaka Flipkart Supermart
introduce F&V private labels
• Developing and driving adoption of Private labels important –
– Enables higher discounting – Crucial for driving penetration in Value first Key enablers –
segment (highly price sensitive). Supermart currently offers 8-15% lower
discounts than competition • Reliable and cost-effective contract manufacturing
– Higher margins – 1.5-2x (depending on categories); Crucial for sustaining facilities
profitability in long run • Strategic marketing to improve uptake of private
– Owning supply chain – Allowing better control compared to mktplace & labels
inventory model
 RAPID SCALING BY EXPANDING QUICK
4 5 Optimized marketing resource allocation
COVERAGE
GMV levers impacted: Effectiveness: GMV levers impacted: Effectiveness:

• Inventory model issues: Globally, e-grocery players have seen limited success in • Higher spend on customer acquisition:
ramping up scale and profitability due to – – e-Grocery customers typically loyal– there is a strong habit forming.
– Difficulty in managing quality and scale of inventory Even post price comparison, they order from portal they are
– Heterogeneous nature of products comfortable with
– Higher logistics cost – Flipkart can divert spend to acquisition than on retention. Further,
• Hyperlocal gaining traction – Hyperlocal model has seen increased acceptance • Driveretention can be driven
cross & up-sell: by good
Leverage service
Flipkart's quality and recommender
battle-tested loyalty programs
due to its capex light nature and meeting regional tastes by leveraging local systems and extensive customer data to unearth account level signals
stores stock. Comparison of different model ensues

Details Inventory-led Hyperlocal Hybrid

6 Lowering MOV and delivery charges
Inventory requirement High Low Moderate GMV levers impacted: Effectiveness:

Capital requirement High Low Moderate • Relatively higher minimum order value & delivery fee for Supermart
SKUs High Low Moderate Player MOV MOV for free delivery Delivery fee below MOV

Lead time High Low Moderate Big Basket INR 0 INR 1200 INR 30-50

Margin potential Moderate Low Moderate Grofers INR 0 INR 500 INR 30

Amazon Pantry INR 200 INR 599 INR 30-60

Quality checks High Low Moderate
Supermart INR 600 INR 600 INR 50
• Hyperlocal challenges – Apart from the fact that the model restricts inventory
checks and offers lower margins, there is a lack of trust from local stores and JioMart Free - Free
resistance in areas where kiranas provide delivery through own personnel
• Strategic elements for consideration to enable rapid scaling via Quick–
• Dark stores: Opening F&G specific dark stores (spread across 3k-4k sq ft) 7 Partnerships with RWA &
in other cities, starting in regions where Supermart already operates
• Strategic marketing: to deeply penetrate convenience first segment Colleges
GMV levers impacted: Effectiveness:
• Strategic partnerships: with key national/regional retail chains (such as
Vishal mega mart) by creating digital storefronts etc., to drive higher • Partner with large resident welfare associations & colleges with hostels
order fulfillment rate to place bulk orders – improving predictability and allows order grouping
 • Indian e-grocery market report: Praxis Global Alliance (2020)

• Grocery retail – Changing landscape: Analyst report by Motilal Oswal (2021)

References

• Avenue Supermarts – Initiating coverage: Analyst report by Phillip Capital

(2021)

• Retail sector report: Analyst report by HDFC Securities (2020)

• Press research – Mint, ET, Businessline

• Desktop research