As more news about the impending Flipkart-Walmart deal reaches people, some obvious facts are missed by most. E-Commerce is still a minute fraction of retail in India. It accounts for 2–3 percent of total retail in India at best. It’s expected to reach double digits percentages only 10 years from now. Let’s see what that means. For an online retailer to really get a sizeable chunk of the Indian retail pie, they surely have to plan for the long term. Not just that, putting your bets on E-Commerce alone will neither give you those double digit numbers. It’s only inevitable then that the online players will start (have started) placing bets on offline retail too. The Amazons and Flipkarts off the world will need to go offline.

While we did mention that offline retail is the big silent winner as of now, we never mentioned that it’s extremely fragmented. The biggest offline retail players together(Future Group, Reliance Retail, DMART, Landmark Group etc) have only around 8–10 percent of the total pie. While its 4–5x of E-commerce, it's still not enough to be able to be feel invulnerable. They have understood the same too. In the last few years, they have lost a good share of their customers in Tier 1 cities to online players and they feel the brunt. Some of them have some own tricks up their sleeve and have been creating a good buzz around their intentions off late.

Future Group for example has some grand plans related to their EasyDay format. They are looking to go all out on the neighborhood store that will be accessible and solve its nearby radius supply. They are betting on the membership program that has an annual cost of INR 999 and gives customers a 10 percent discount on billings. What’s more interesting is that they are also building an app that allows delivery of grocery to their homes. Sounds familiar? Its E-Commerce of course. Just that by having more small size stores catering to just their neighborhoods, they have helped optimize the costs of delivery and increase loyalty of their customers. This approach feels really smart since they are sticking both to their core strengths of offline and also enabling delivery but in a more scalable way. Experience has shown them that customers buy more from a brand if they use both the offline and online channel. This strategy thus makes sense and Future Group is

going all out to execute this. It’s what Kishore Biyani calls Retail 3.0. They have tied up with Google, Deloitte and some startups too to execute it and believe its the next generation of retail where the” customer asks and he gets it.”

DMART on the other hand seems to have its own plans. They think quite differently and concentrate on just making their business grow via first principles. Can’t really blame them since they already have extraordinary volumes just sticking to this strategy. They place the price game out-right. Stick to a smaller catalog, drive more volumes and get bigger discounts from the source. As simple as that. And the fact that most of their commercial property already has been taken for a very long lease or bought is a great advantage for them. After all, real estate is the biggest cost on the balance sheet of the offline retailers. From what it looks like, they will not change their strategy much in response to the online players, and I guess sensibly so looking at their current growth and volumes.

Reliance Retail too has an ace up its sleeve. After Reliance Jio, it sure will find a way to use the Jio audience to help boost its retail segment too. There already seem to be some plans to provide Jio coupons to help with sales of brands they are targeting to sell via Kiranas. Not only is this aimed at the masses, if implemented right might cause huge redirection and landslide change in the way retail works in the unorganized sector. This said, Reliance also has lots of stores with diverse products, many times coming from foreign brands that will always ensure they have a market for one segment of the people. There doesn’t seem to be much news about their Grocery moves however.

So why all the fuss about grocery? If you give it more thought, you’ll understand why. Every single online player wants to get into this segment. From the likes of Flipkart to PayTM to BigBasket to Ola to Grofers. Grocery is a weekly ordering cycle. Most things are not. Take smartphones that dominate the sales figures of Flipkart for e.g. You are very unlikely to buy a phone more than once a year. Or electronics. Or footwear. Daily/Weekly need items are the ones that will get you loyalty and make your brand stick with consumers. You get a grasp on this market, the users will automatically fulfill other high margin items via you too! Every online player understands that and is fighting for it. It’s also the reason why Future Group is willing to do delivery and subscription. It’s why Alibaba put money into Big Basket. Its why PayTM ventured into this category and also why Flipkart again is trying to enter although it got its hands burnt once.

While on the goal to reach higher sales volumes, every online player will need to have more fulfilling centers to reduce logistics costs at scale. Why not double them up as stores?

Similarly most offline retailers too will start opening up neighbourhood stores. Why? The supermarket/hypermarket model becomes tougher and tougher to sell over time. It maybe travel time, it maybe laziness of customers or it may be a Grofers or Amazon that triggers this. But the fact that hypermarkets will survive only if they reach really high footfall remains, and it becomes tougher as time marches. So it becomes imperative for Retailers to open up neighbour stores. Why not double them up as fulfilment centres then?

Future Group enabling delivery via its EasyDay stores is a step in this direction. Amazon buying stakes in offline retail brands is another indication. To me, this looks like the direction for the next phase of growth, where everyone is fighting for the long game and the bigger numbers. And this surely is not possible unless they embrace the best of both offline and online retail. My bets are actually with the offline guys. Let the games begin!