Flipkart Strategy Analysis and Recommendation
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Flipkart is India's largest e-commerce company. It has a 40% market share in India's online retail industry, which was $64 billion in 2020 and is projected to grow to $200 billion by 2027. Flipkart has made several acquisitions to expand into related businesses like online travel, financial services, and logistics. It aims to increase its market share in key categories like mobile, electronics, fashion, and grocery. To achieve this, Flipkart plans to expand its fulfillment center network to smaller cities, focus on private labels, and increase offerings in high-engagement categories. It also aims to leverage its investments in Myntra, PhonePe and Cleartrip to drive profit
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Flipkart Strategy Analysis and Recommendation
- 1. Flipkart Strategy Analysis Ab Har Wish Hogi Poori Vinita Mahawar SMPBL0520119 Chandra Bhushan SMPBL0520023 Rahul Jain SMPBL0520075 Sachin B More SMPBL0520085 Rajesh Kumar SMPBL0520077 Pravin K SMPBL0520073 Irshad Baig SMPBL0520035 By GROUP19
- 2. E-commerce in India ● World’s #1 millennial population ● 6th largest economy in the world, GDP per capita $1,877 in 2020 ● Indian online retail industry was $64 billion in 2020 ● Will grow by 3x to $200 billion by 2027, CAGR of 30%* ● Fasted growing Internet-habituated consumer base of 180 million broadband users by 2020, ● Primary Segments are online travel, retail, financial services, matrimony and classified, and other online services segments. Industry challenges: ● Low Internet Penetration in India ● Govt regulations ● Push back from Traders body e.g CAIT, Delhi Vyapar Mahasangh ● Competition from offline sellers ● High capital requirements, high warehouses and logistics cost Industry Opportunities: ● Internet based users are growing by average 24% YoY ● Expected to reach to 1 billion users by 2025 ● E-commerce is one of the fastest growing industry in India ● Online travel held highest market share in 2019 https://www.statista.com/statistics/792047/india-e-commerce-market-size/ https://www.pwc.in/assets/pdfs/publications/2014/evolution-of-e-commerce-in-india.pdf * https://www.indianretailer.com/article/multi-channel/eretail/the-indian-online-retail-market-to-grow-at-30-cagr-over-the-next-five-years-study.a6612/ 2
- 3. Flipkart : Key facts 3 2007 Established India’s largest ecommerce portal, Walmart acquired majority stake in 2018 for $16bn 5+Brands Deep relations with India’s top retailers, fashion and brands 13 Acquisitions | $12B GMV* India’s one of the largest ecommerce portal 160M+ Customers | 150M+ Products India’s only company with such access at scale 500+ Cities Fulfilled Covering all Tier 1 & major Tier 2 cities, and counting *https://entrackr.com/2019/11/flipkarts-financials-reveal-full-blown-retailer-not-marketplace/ https://stories.flipkart.com/24-09-2019-flipkart-fashion-collaborates-with-over-100-leading-brands-for-the-big-billion-days-2019-1/ Mergers, Acquisitions, Strategic Investments
- 4. and Growing... 4 Aspiration: to increase online retail market share to 30% ($60bn) from current 18% ($12bn) over next 5 years Target: Mobile : 45%, Electronic appliances : 18%, Fashion : 16%, Grocery : 6%, Travel : 2% , remaining from other categories, B2B trade, phonepe and group companies Ninjacart : India's largest Fresh Produce Supply Chain, 200+ collection centers, 1200 warehouses, 1400 ton /day Aditya Birla Fashion : Strong network of offline stores with 3,031 stores, revenue of 8,788 cr and 8 million sqft retail space Blackbuck : India's largest trucking platform Shadowfax : India's leading integrated 3PL services provider cross-utilised, dedicated & skilled logistics fleet for handling high-priority & critical documents Strategic Investments Mergers, Acquisitions PhonePe : India's one of largest digital payment and financial services company. Crossed 1 billion UPI transactions in 1 month in Feb 2021, 100 million MAU with total 250 million registered users, 13 million merchants in 500 cities Myntra: India’s largest premium segment Fashion store with 40% market share* . Merged with Jabong.com in 2016, 70% market share including Flipkart fashion, Cleartrip : India's leading platform for online travel, hotels, and events booking. Profitable ~45 crore https://economictimes.indiatimes.com/industry/services/retail/flipkart-expects-to-treble-gmv-to-17-6-billion-in-2020-21/articleshow/64834332.cms?from=mdr https://inc42.com/features/cleartrip-for-work-how-cleartrip-is-bringing-corporate-travel-benefits-to-startups/
- 5. Buying Power Supplier Power Threat from New Entrants Threat of Substitutes Competitive Rivalry • Bargaining power of buyers is very high because of low switching cost • Customers are sensitive to price • Keen to have more information about products and their associated prices • Impacted by purchase quantity, number of customers, discount factor and so on • Bargaining power of Suppliers is very low because of high customers bargaining power due to low switching cost • Large base of small retailers who have substitutes at lower price with low base of large retailers • Threat of new entrant is moderate to high because the new entry is associated with higher level of capital investment • However, the market players who are really keen on the Indian market due to the growing customers purchasing power never hesitate to invest in India • Threat of substitute is very high because consumers are really concerned about the price • Unorganised retail sector has the ability to provide quality product with better performance at a lower price • Rivalry is high in India because not only existing Indian players but also the foreign players have entered • Fragmented retail market • Government policy on FDI for single brand at 51% and multi-brand at 100% investment is allowed Template by HiSlide.io POWERPOINT - KEYNOTE - GOOGLE SLIDES Porter’s Five Forces 5
- 6. S T E L P E Economic Factors - Consumers expenditure growth : will help in increasing purchasing power - Tightening FDI norms : will lead to less investment - Removal of distinctions in different types of overseas investment - 100% FDI in food retail Technological Factors - Increased business process automation and implementation of data analytics, cloud, ML, AI - Leveraging AI for smart decisions, location mapping, virtual size & fit (trial) - Increased use of mobile devices with Internet facilities and thriving popularity of digital payments Legal Factors - Infringement of Intellectual Property (IP) - Regulatory changes for protection of online shoppers - Unethical commercial practices Environmental Factors - COVID19 - Promotion of green environment - Environment friendly products Social Factors - Healthy lifestyle and cultural diversity - Rise in number of Online consumers - Empowering youth through employment Political Factors - Alignment of operations with Government policies and regulations - Rural economy and Digital India policies of Government : will help in building reach with rural consumer base Template by HiSlide.io POWERPOINT - KEYNOTE - GOOGLE SLIDES PESTEL Analysis 6 - COVID19 has an impact on business due to shutdown of business during lockdowns, or supplying only essentials - During pandemic, premium/luxury products sale e.g Fashion, Mobile, beauty products have a direct impact due to weak Economy - The online retail are expected to grow 4x due to increase online consumers - Healthy lifestyle, and increase in reach of premium brands will help people in Tier-2 to shop more - Technology advances like AI, will help in reducing return orders with virtual size & fit https://www.financialexpress.com/industry/sme/indias-e-commerce-user-base-to-grow-to-300-350-million-shoppers-by-2025-from-100-110-million-in-2020/1993274/
- 7. http://yourfreetemplates.com S W O T Strengths Opportunities Weaknesses Threats • Robust line of acquisitions • Strong in-house brands • Exclusive tie-ups with established brands to attract customers • Internal fleet helps in streaming deliveries • Acquisition by Walmart • Leverage the nationwide vibe of “Make in india” • Launch of Flipkart Fresh, new 90 min groceries delivery • Spin off PhonePe to make it an independent entity • India’s growing logistics sector can provide a good ground to highlight its own fleet • Desperate to outbid Amazon • Rapid revenue jumps at the cost of staggering losses • Limited distribution channel reach • Low profitability margin due to focus on cost reduction strategy • Amazon India, the formidable competitor • Government policies - GST • Rise of small online retail companies • Unethical commercial practices SWOT Analysis 7
- 8. Competitive Position - BCG Matrix Market Growth rate Relative Market share High High Low Low 8 - Myntra, PhonePe and Ninjacart are growing very fast while Flipkart have slow growth but high growth potential - Cleartrip is currently having a relative low market share - Walmart India should expand to grow the market share. - Roadster a private label from Myntra should increase its market share - Aditya Birla Fashion and retail have offline stores and is profitable but with a low market share and low market growth rate
- 9. Diamond Analysis Economic Logic Arenas Vehicles Differentiators Staging & Pacing Staging and Pacing: How will be our speed and sequence of moves ? - Focus on Tier-2 & Tier-3 cities Infrastructure building, Target opening up additional Fulfilment centres in next 3 year, Focussing on groceries for 8 Metro cities, Raming-up additional categories -Target Myntra for profitability (1 year), PhonePe towards Monetization (2 year) and cleartrip for growth/expansion and establishing 2nd player in 3-4 years Economic Logic: How will returns be obtained? - Reduce CAC and increase LTV by integrating users/incentivising between Flipkart, Myntra, PhonePe and Cleartrip -Focus on identifying new monetisation channels and increasing margins Differentiators : How will we win? - Focus on cost leadership but increase “value” for Metro and Tier-1 users from ecosystem or additional offerings / convenience -Focus on increasing the quick product delivery within 1 day/3 day based on the categories -Faster and better selection in Groceries with 1-3 hour delivery Vehicles : How will we get there ? - Build better technology capabilities either in-house or using M&A -Use M&A for building an ecosystem offerings so it will help in providing “value” with cost leadership -Increase Exclusive Partnerships/Alliances with Mobile manufacturer companies -Focus on private Labels by tie-ups with local manufacturers in Fashion, low cost supportive products for e.g Mobile charger, cover, screen guard etc Arenas: where will we be active and with whom ? - Focus on Mobile, Fashion, large appliances, consumer electronics with 3 additional categories Books, Beauty products, Travel -Focus/ hold the market share in Tier-1 but double down the investments for Tier-2 and Tier-3 cities due to untapped existing large customer base
- 10. Competitor Analysis Amazon Focussing Long tail products - horizontal expansion - Adding a ecosystem with new avenues - Focussing on lot of daily habits forming activities / purchases from a long term 31% market share* compared to 40% of Flipkart, Popular in Tier-1 cities, Premium segment Reliance Expanding across Fashion, Groceries with online - offline Integration - 3500 Stores - 180 Cities & towns JioMart have 20% market share, AJIO slowly catching up. Makemytrip Deep presence in Online travel and hotel bookings - 14 Stores - 30 Cities Over 50% market share in India GPay Formidable Competitive player due to google ecosystem - 75 million Monthly active users - 180 Cities & towns 35% market share in Total UPI transactions compared to 44% of PhonePe 10
- 11. Strategy Analysis and Recommendation
- 12. Previous Strategy Analysis SUCCESS Flipkart’s focus on Mobile, Electronics appliances & Fashion helped company retain its leadership position. Flipkart was able to retain and increase its presence in Tier-2 markets for Mobile and Fashion in recent big billion days sale 57%# of 47M (2019) to 88M users FAILURE Flipkart launched several initiatives by coping Amazon strategy but most of them have failed to make a significant dent and impact to its topline. Flipkart groceries was not very successful and its re-launched recently with 90 mins delivery 01 Flipkart Videos similar to Amazon prime was another unsuccessful attempt due to being a crowded market 02 Flipkart and Myntra launched several offline stores but they were not successful and have only few active stores now. 03 Flipkart launched digital music but it failed to take off as Indians usually don’t prefer to buy music 04 Flipkart coin, a loyalty based reward system is not very effective 05 01 02 03 04 05 Flipkart plus, a rewards program similar to Amazon Prime was not equally successful 06 12 # https://www.financialexpress.com/industry/sme/flipkart-pips-amazon-to-lead-online-festive-sales-this-year-industry-gmv-up-65-from-year-ago/2137718/
- 13. - Expand to Tier2 - Tier3 cities for established categories - Structure commissions / charges to move towards Profitability - Add 35+ more Fulfilment centers in 9-10 cities with coverage to 50+ cities in a radius of 50Km. Right balancing of profitability / expansion - Increase/Addition of own Labels in long tail products - Focus on 3 more categories from existing Fashion, Mobile, Electronics Appliances - Focus highly on daily habit forming/ high engagement purchases like groceries - Increase presence on own labels - Expand to more premium categories - Focus on new segments like Beauty and Lifestyle products - Focus on Tier-2 cities with Population > 50 Lac - Improvement in Technology to reduce number of return orders - Faster / 2 days delivery - Expand to other offerings / services without losing focus on current growth - Add new lines of business like insurance, business loan - Tie-ups with NBFC - Single platform for all Financial services e.g Mutual funds, Stock trading, Insurance, loans, payment transactions (recharges, EMI, PG) etc. - Reduce / set out with discounts Rs. 300 charges/person for each booking - Launch new custom plans related to flight cancellation, flight changes similar to insurance model to attract more audience. - Travel is limited to few times / year / person, so expand to categories with more usage / frequent purchases. It will have higher CAC but a higher LTV - Increasing brand awareness compared to other incumbent players - Increase market share from current 20% to towards 30%; MakeMyTrip have ~ 50% market share Myntra PhonePe Cleartrip Flipkart Strategy Plan Action Recommendation Flipkart group Focus on increasing High engagement businesses as an investment and target profitability for existing business lines with existing leadership Focus on identifying categories to move from cost leadership to more value to customer Technology / SCM based Innovation in existing business lines Target Myntra for Profitability, PhonePe for higher growth and establishing Cleartrip as an additional brand with clear differentiation and market leadership (making top 2 in terms of market share) 01 02 03 04 13
- 14. SrNo Strategy Action Benefit Investment ROI over 5 years 1. Addition of new Fulfilment center (9 lac sqft /20 acre) to raise from current 35# to 60 FCs : 1. due to 57%* consumers shopped from Tier-2 cities and beyond 2. New 25 FC can cover 50-75 cities (100km radius) 3. Cost : Rs. 3.22cr/acre^ + Setup costs ● Will help in covering more Tier-2 and Tier-3 cities ● Faster delivery by 1 day ● Reduce logistic cost by 10% ● Rs. 150 cr / FC ● 3750 cr (25 *150 cr) ● Potential : 5% additional GMV 5% * $12bn (72000 cr) * 57% Tier-2/3 consumers = 2052 cr/year 2. Tie-ups, Partnerships with existing small stores chains to use their warehouses/infrastructures in city like Ratnadeep, Heritage, Vijetha ● Will help in improving the delivery time ● Rs. 100 - 500 cr ● Faster delivery lead to better customer engagement, frequent purchases ● let’s say 2% of total business = 2% of $12Bn = $200mn => 1200 cr 3. Wholesale tie-ups with small merchants in Tier-2/Tier-3 cities to supply products in Bulk (B2B trade) ● More presence in B2B with better margins / no discounts in addition to B2C business ● Rs. 300-500 cr ● Revenue channel with additional business of 12000 cr 4. Increase focus on additional 3 categories like Books, Beauty Products, Groceries from current Fashion, Mobile, Large Appliances, Consumer electronics ● Horizontal spread/ expansion ● Additional business lines ● Rs. 500 - 2000 cr ● Additional GMV of 12000 cr 5. Run existing business individually as it is now but Integrate business users to cross incentivize them. For e.g. Flipkart users can use PhonePe for financial services and buy apparels from Myntra and vice-versa ● Monetization of existing large user base (business/corporate/homemak ers) ● Cross-selling between platforms ● Rs. 200cr ● Will reduce CAC for existing users to bring them back on platform. ~Rs 200 * 10mn users = 200cr ● Will improve LTV of the users as they are using multiple services (travel, ecommerce, payments, groceries, daily usage) Proposed Plan 12 POINTS : Flipkart 14 *https://www.financialexpress.com/industry/sme/flipkart-pips-amazon-to-lead-online-festive-sales-this-year-industry-gmv-up-65-from-year-ago/2137718/ | #https://www.mohitecommerce.com/flipkart-warehouse/ https://www.livemint.com/news/india/flipkarts-largest-fulfilment-centre-in-asia-to-come-up-in-gurugram-s-manesar-11617720974869.html
- 15. SN Strategy Action Benefit Investment ROI over 5 years 6. Focus on “Groceries” segment for Metro cities for first 2 year and capture at-least 15% market share: Bigbasket have 40% market share ● Habit forming to consumers, better engagement ● Small scale delivery/collection center within cities, Delivery centers for agents ● Total Rs. 6000 cr = 6 metro * 500 cr + 10 Tier-1 cities * 300cr ● Business potential $5bn (3000 cr) 7. Acquire 5-6 low ticket startups with internet business categories like Online hotels booking, Furniture, Pharmacy etc. ● Will help in establishing in more categories and expanding offerings ● Rs. 150 cr * 6 startups = 900 cr ● Business benefit of 2x = ~2000 cr 8. Channelize the Ninjacart’s specialities to deliver to small merchants (B2B) similar to Reliance Fresh, and use the same network for delivery in B2C ● Faster delivery by 1 day ● Better utilization of existing resources ● Rs. 1000 - 3000 cr ● Business Potential for B2B Rs. 6000 cr 9. Tie-ups with corporates to provide loyalty/credit card cards to their employees with a top-up every month that fetches additional benefits/discounts. Or tie-up with company like “Zeta” to have this benefit in their card. ● Repetitive customer base ● Rs. 100 cr ● 2x return on ROI, ● Frequent purchases by office goers Rs. 2000/year * 1mn office goers = 200cr/year * 5 years 10. Increase adoption of Flipkart coin and Flipkart supermarket ● Repetitive purchases ● Rs. 100 cr ● Increase in repetitive rate lets say by 2% 11 Leveraging on payment capabilities through PhonePe & thus enhancing customer coverage & adding on new financial products on same platform ● Using Network effect lower cost for acquiring new customers from existing ~250mn ● Focus on Financial products (Insurance/Pay Later) for improved margins ● 500 cr for New Products ● Increase in Topline of Flipkart by 2-5% ● Revenue channels with better margins by 10% ● 1000 cr : 5% of MAU = 5% * 250mn * 2% commission of 1 Lac loan 12. Investing/Acquiring existing specialised business segments in online deliveries E.g Milk/Non-Veg etc ● Extended coverage & market expansion ● Rs. 300 - 500 Cr ● Better infrastructure capabilities, large intraday delivery network 15
- 16. 16 Focus on Tier 2/3 cities Focus, for increasing profitability, is on Private Labels Design Risk | Sell-Through Risk | Brand Building Zero Supply Side Risk Build leadership in 3 more categories Capacity building precedes scale Inventory, Fulfillment Centres Category-wise, Geography-wise Positioning always on Convenience, Quality, Variety Positioning for mass continues to be Discounting High CAC customers Profitable, Loyal Customers Conclusion