Flipkart’s Expansion in Rural India: Will it be Successful?

Introduction:

Home to 1.4 billion people, India is one of the largest and fastest-growing e-commerce markets in the world. As of January 2022, the country has 658 million internet users. In 2020, 95.3% of internet users in the country, aged between 16 and 64, visited e-commerce websites. More than 70% of users looked up products online, and a similar percentage made an online purchase. Nearly 60 percent of internet users bought products from their smartphones. According to Kearney, online retail accounts for 4%, valued at $4 billion at present, but that would reach 19% by 2030 with a value of $40 billion. 

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The pandemic definitely spurred the growth of online shopping in India, but e-commerce companies are now facing a new challenge. Big cities reached saturation point. In order to grow their businesses, local e-commerce companies must expand in semi-urban and rural areas, but this is a major uphill battle. In this assignment, we shall look into the logistics operation of Flipkart, one of the top Indian e-commerce companies, to try and understand if there is any limitation that is hindering its expansion.

Rural India: The New Frontier for e-Commerce Companies

Before talking about Flipkart logistics, we need to talk a bit about rural India to understand why it is important for the future growth of Indian e-commerce companies.

At present, around 65% of India’s population lives either in rural or semi-urban areas, which will come down to 53.5% by 2040. Currently, rural India plays a pivotal role by contributing 25-30% of the country’s GDP. According to a Bizom report, in the FMCG market, rural consumption increased by 58% YoY, twice the rate of urban consumption.

Despite facing numerous challenges, rural India is growing rapidly. With proper policy implementation, improved infrastructure and better internet infrastructure, the government can overcome many of these challenges, thus unlocking the true potential of the rural economy.

Mobile internet is now more or less available in Tier I and Tier II level Indian cities. Still, a large portion of the country’s rural areas has insufficient internet coverage.

Since 2011, the Government of India (GoI) has been implementing Bharatnet, a megaproject that will bring all the villages in India under broadband internet coverage. The project took off in 2011, and the first phase has been completed, connecting 300,000 villages. The second phase is ongoing, and upon completion, an additional 150,000 villages will be connected.

Along with improved Internet infrastructure, the rising literacy rate will also drive internet penetration and upward economic movement. Both government and non-government organizations are working to educate the rural youth. As of 2021, the literacy rate in rural India reached almost 73.5%, of which 81% were male and 65% were female. As more and more people become well-educated, they will also become tech-savvy. They will increasingly rely on mobile internet to perform daily tasks, such as online shopping, bill payment etc. According to a statement given by the Internet and Mobile Association of India (IAMAI) and consulting firm Kantar, the number of internet users in rural India will probably increase more than in urban India by 2025.

All these are indicative of the fact that rural India is the way for the future growth of e-commerce companies.

Flipkart: A Brief Overview

Founded in 2007 by two IIT Delhi graduates, Sachin Bansal and Binny Bansal, Flipkart is one of the top e-commerce companies in India at present. As per the October 2021 report, the online marketplace supported 375,000 sellers. It wanted to increase that number to 420,000 by the end of 2021. According to news reports, on average, the company fulfills two million orders every day. In FY 2020, the company had a Gross Merchandise Value (GMV) of $15 million.

Flipkart Logistics:

The success and future growth of an e-commerce company depend on the range of quality products it can offer to customers at an affordable price and deliver those products on promised time. Realizing this, Flipkart started its own logistics operation in 2010. Over the years, its logistics capabilities have grown. Thanks to all the investment and planning, the company now has a highly sophisticated supply chain that is end-to-end managed. Aside from developing its own logistics, the company also partners with other logistics service providers. Through its logistics, Flipkart delivers products to customers as well as procures products from suppliers and merchants. Flipkart’s operations team works on supply chain, procurement, warehouse management and customer support.

·         Flipkart’s in house logistics capability:

·         Flipkart operates more than 100 warehouses and about 2600 delivery hubs all over India. It has its own logistics subsidiary, eKart Logistics, that handles all its logistics operations.

·         Third party logistics service providers:

·         Flipkart’s in-house logistics handles 60-70% of the order fulfillment while the rest is done through third-party logistics. The company maintains a database of logistics companies and their respective areas of operations. In many places, there are no logistics services. In that case, the company uses India Post. For efficiency, the company allocates slots to different logistics companies when they collect their goods.

Product procurement:

·         Flipkart sources products from different suppliers. It has regional procurement teams that work with local suppliers and a central procurement team. The central team overlooks the entire operation and deals with big suppliers.

·         Based on customer data, Flipkart collects products from suppliers.

·         For fast-moving products, Flipkart collects them from suppliers and delivers them to its customers using its own logistics or third-party logistics partners.

·         For low-selling items or items where the demand fluctuates, the company uses the just-in-time method. In this method, Flipkart procures the product from suppliers only after getting orders from customers. Just-in-time procurement is expensive and has slow growth.

Goods inbound:

·         Flipkart collects the goods from suppliers.

·         After the goods reach the warehouse, employees conduct a quality check.

Storage management:

·         Employees at the warehouse create a list of the products.

·         They also check for pending orders. If 'Yes' then the product is delivered. If 'No' then the product is stored and the product list is updated.

·         An item is labeled “Out of Stock” if it is not available in the warehouse or the vendors cannot supply it within the mentioned time limit.

Goods outbound:

·         A product list is generated.

·         Employees then pick up the products from the shelves.

·         The product is packed to make it tamper-proof, weather-proof, and breakage-proof. 

·         The product is then categorized based on delivery locations.

Order fulfillment Process:

·         After the customer places an order, the Flipkart Operations team checks inventory to see if the product is available in their warehouse or if they have to order it from the supplier.

·         The good is transported to the mother hub and then to the delivery hub.

·         From this delivery hub, last-mile delivery is made either by motorcycle or bicycle or on foot.

·         The customer gets SMS, email, or message from the website.

Delivery:

·         Based on location and product availability, product delivery varies from three days to three weeks.

·         If the product has to be imported from abroad, it might take about three weeks to deliver.

·         If the product is available in the local warehouse, it is delivered in three days.

Mode of transportation:

·         To transport goods at long distances, Flipkart uses air cargo.

·         If the location is close, goods are transported by train or truck.

·         For goods transport in cities, Flipkart uses two-wheelers and bicycles.

Product return and reverse logistics:

·         To gain customers’ trust, Flipkart has a flexible return policy.

·         In case of product replacement, Flipkart returns the product to the supplier and obtains a replacement, which is then delivered to the customer.

·         If the replacement is not possible, Flipkart gives customers store credit or a similar amount they paid to purchase the product. The customer then purchases another product.

·         In many cases, third-party logistics cannot deliver to the address, or the customer changes his mind and does not accept the product. In that case, the product is delivered, and the customer contacts customer support and returns the product. Flipkart then collects the product and processes it on its own expenditure.

Increasing logistic capability:

Better logistics capability makes a big difference for e-commerce companies, but developing such capabilities requires solid planning and a huge investment. Flipkart is well aware of this challenge and has been tackling it head-on since the beginning. The company developed a state-of-the-art system that connects all its operations and ensures smooth data exchange and coordination between different branches.

The company has been investing heavily to improve its storage management and order processing capacity. Since 2019, eKart has been using Automated Guided Vehicles (AGVs) in its warehouses. These robots can sort 4,500 packages every hour.

Last-mile delivery is the single biggest challenge for every e-commerce company in India. Because of unplanned urbanization, many areas do not follow any zoning system or policies. To tackle this problem, Flipkart announced to invest $2.5 billion in logistics in the next 4-5 years. The company will invest in building more warehouses and acquiring delivery vehicles. In addition, the company is also using machine learning technology. The company also partnered with 10,000 local shops that serve as pick-up and drop-off points.

Customer fraud is another big challenge. Flipkart is using a data management system to prevent customer fraud.

Can Flipkart successfully expand into rural areas?

From a business perspective, Flipkart ticks all the right boxes, but expanding into rural areas comes with a whole new set of challenges. Some of the major challenges of rural India are:

Cash-on-Delivery:

In rural India, people still prefer to transact in cash. Last year, CMS Infosystem published a study that revealed that more than 65% of online sales transactions in India happened in the Cash-on-Delivery (CoD) mode. A company spends a lot of money to deliver a product to a customer, but after receiving it, if the customer refuses to purchase the product or makes delays in payment, it affects the company’s business. CoD customers have a high product return probability. During the pandemic, Flipkart temporarily suspended CoD for fear of contacting COVID from cash.

Logistics:

Infrastructure and internet connectivity are still major issues in many rural areas. Many villages are not well connected by roads. Many villages do not have reliable Internet connectivity.

Language and Culture:

As we move further into semi-urban and village areas, local language is spoken more. Keeping this in mind, e-commerce companies have to develop more contents in local languages. This is a serious problem because different languages are spoken in different parts of India.

A deep understanding and appreciation of rural culture are also very much necessary because rural communities are very close. People do business with those they know. They are not very comfortable with outside influence.

How Flipkart will tackle these challenges?

Flipkart is one of the pioneers of CoD in the Indian e-commerce industry. A large number of Indian people do not use credit cards or digital payment systems. The only way to get these people to buy something online was to use CoD. So, Flipkart offered CoD to customers, which became one of the major reasons behind its growth. The company has ample experience and knowledge in handling CoD problems. For this reason, they can easily attract customers from rural areas.

When it comes to tackling the issue of infrastructure, Flipkart is partnering with various regional logistics service providers and local shops. Yes, there will be complexity in product delivery and product sourcing from remote areas, but Flipkart will have to come up with innovative ideas and technologies to successfully navigate those problems. Things will gradually improve in the near future.

In order to enable people located in areas with poor internet connectivity, Flipkart launched Flipkart Lite in 2015. It is a web app that works on low-cost smartphones and sketchy internet connections. The app will allow a person to access the Flipkart marketplace and order products.

In 2019, Flipkart launched Flipkart Samarth, a platform that enables rural artisans, craftsmen and weavers located in remote rural areas sell their products on the Flipkart marketplace. The project is now supporting 950,000 artisans, weavers and craftsmen. It is also working with the government to help rural people. Recently, the Ministry of Rural Development, under its Deendayal Antyodaya Yojana– National Rural Livelihood Mission (DAY-NRLM) program, partnered with Flipkart to sell products made by rural artisans and craftsmen. Flipkart should take more such initiatives in the future. This will help the company to build a better image in rural communities and will motivate people to purchase products from the marketplace in the long run.

Final Thoughts:

The reality is that “Rural India is not prepared for e-commerce.” Villagers are still not used to the idea of paying for a product without touching or feeling it first. It will take a long time and consistent effort from e-commerce companies to develop online shoppers in rural India. Companies that will start earlier will gain the “First Mover Advantage.” Top e-commerce companies like Amazon and Flipkart are very much aware of the potential. So, they are slowly and gradually trying to establish their footholds. They have to come up with strategies that will enable them to achieve people’s trust. Once it gains that trust, people will feel comfortable buying products on its platform. 

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