wages dangerously big online war in India

A giant and dangerous food fight is breaking out in India. Even as its own home-grown e-commerce efforts stumble, Walmart is paying $16 bn for an initial 77% stake in Flipkart, pitting the U.S. superstore owner led by Doug McMillon against rival Amazon in a huge, unprofitable market of 1.3 billion people.

It also challenges Alibaba, which backs local rival Paytm Mall.

For Flipkart’s founders, former Amazon employees Sachin Bansal and Binny Bansal (no relation), the deal is a coup. It values their start-up at almost $21 billion, around 60% more than when SoftBank’s Vision Fund invested last year. The deal also includes $2 billion of new equity.

Other investors could join the round which would reduce the buyer’s stake. Reuters earlier reported that Google parent Alphabet could invest $3 billion. Walmart also supports a plan to eventually list the Indian entity.

Presence in India

For Walmart, it is another way to tap into an $800-billion retail sector.

After a decade of struggling to navigate tough foreign ownership rules, the $250-billion company only has 21 wholesale cash-and-carry stores in India.

Online shopping is just taking off, but so-called gross merchandise value will be worth $200 billion by 2027, Morgan Stanley estimates.

In a country where hyper-local mom-and-pop stores dominate, Walmart and Amazon are betting that groceries will emerge as a sweet spot.

Indians spend a mere $1 billion a year buying food online, Praxis Global Alliance estimates, but exponential growth is expected, if the recent recapitalisation of smaller companies like BigBasket and Grofers is anything to go by.

Market share

In online shopping, overall, Flipkart holds an eight percentage point market share lead over Amazon, according to research firm Forrester.

Amazon says household products and groceries will grow to account for half its India business, and it aims eventually to deliver everything within two hours.

Amazon’s challenge

The challenge is that many independent vendors already deliver in half that time for free. That suggests serious discounts may be required to scale.

After buying Jet.com for $3 billion a couple of years ago, Walmart’s efforts to compete online in the United States have hit some bumps.

Earlier misadventures in China prompted it to join forces with local rival JD.com in return for a small stake.

India will test the U.S. company’s ability to keep pace halfway around the world with Amazon, whose investors are as patient as boss Jeff Bezos. This will be a make-or-break overseas deal for Walmart.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)