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Why Snapdeal merging with Flipkart or Amazon will not make sense? Or might.


 

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Last couple of days have been ripe with rumors of Snapdeal reaching out to Flipkart and Amazon for a merger/buyout. YEstreday Kunal Bahl poked fun at these rumors with a tweet on the name that the merged venture will have. Fun aside, lets see is this kind of acquisition/merger would actually make sense or not.

On the face of it, acquiring Snapdeal will not make any sense for Flipkart or Amazon. Take the case of Amazon’s attempt of acquiring Jabong in late 2014. Rocket Internet (at that time I was leading one of Rocket Internet’s ventures in South East Asia) was looking at a valuation of $1.2b whereas Amazon was in no mood to pay more than $700m. Within weeks of the talks falling through, Amazon launched Amazon Fashion to counter Jabong. Later Jabong bled to its on death and was acquired by Myntra (a Flipkart group company) for $70m. That’s peanuts.

Jabong acquisition actually made some sense as Amazon was not very strong in the Fashion category. Snapdeal on the otherhand is a smaller Amazon. Learning from the Jabong experience, I don’t think amazon would even consider bidding for Snapdeal.

Now for the same reason, it does not make sense to acquire Snapdeal. Why would either of them not wait for Snapdeal to bleed weak till it dies or can be bought at a much lower valuation (just for the brand) as in the case of Jabong-Myntra deal.

Now, can it make sense as well? Remember when Ola acquired Taxi for Sure a couple of years ago for $200m? That deal not only helped Ola become the undisputed champion of ride-hailing space in India, but also removed an irritating competitor who was forcing to burn much more cash than what Ola would have liked to. Is Snapdeal that kind of rival for Amazon and Flipkart? The answer is- Yes. Do they want to remove Snapdeal from the competition? The answer is- definitely Yes. But do they want to right now? The answer is- No. Paying $200m for Taxi for Sure was peanuts as compared to the benefits it brought. Snapdeal is a unicorn. I don’t think either Amazon or Flikpart’s investors would ever agree to shell that kind of money ever. Even buying a small stake in Snapdeal would be equal to a billion dollar funding round for the two larger rivals.

So, let the rumors be rumors. I am not sure if anything is going to happen on this beyond being just rumors.

Building Cold Storage Capacity- A big opportunity in India?

December 25, 2012 1 comment

While reading about the supply chain infrastructure for agriculture in India, I came across a startling fact- India has only 5386 stand-alone cold storages, having a total capacity of 23.6 million metric tons. However, 80 percent of this storage is used only for potatoes. Believe it or not, the remaining infrastructure capacity is less than 1% of the annual farm output of India, and grossly inadequate during peak harvest seasons. This leads to about 30% losses in certain perishable agricultural output in India, on average, every year.

Some of the companies have already started contract farming in India. They work with the farmers right from the time of sowing the crops till the produce is ready to be shipped, refined and sold. In such kind of a framework, the companies have a lot at stake in the percentage of the produce that actually makes its way into the shopping cart of the consumer.

With the Indian Govt. opening up gates to the FDI (Foreign Direct Investment), the farmer to consumer-cart chain is set to become tighter. More the losses in the chain, lesser the margins for the food chains. When it comes to perishable agri-products, cold stores (both short term and long term), become a necessity to reduce, if not eliminate, losses-in-transit.

Now, back to where I started the post- the current cold storage capacity is good enough for less than 1% of the annual farm output. The retail chains have limited shelf space, but when the produce comes from the farms, it comes in bulk. Without proper storage facilities, the farmers tend to get rid of the perishable produce as soon as possible. Thus, getting a very low price for their harvest. Same happens with the next person in line who buys the produce. The end result of this ‘hot-potatoes’ game is that for some part of the season, there is a glut of a particular produce and for the rest of the year, it is not just available.

The wait time from the time of harvest till the produce is placed on the shelf to be picked up the the end consumer is the window where cold storage will play its part. That provides a huge window of opportunity to create and rent out cold storage capacity in India. Or, the storage capacity can be created at various stages- for the farmers at the village level, for the suppliers at the entry point of cities and the for the retailers near their outlets.

I am sure, some entrepreneur, if not already working on this idea, will pick it up soon and kick off the revolution!

Categories: Strategy Tags: , ,