Wal-Mart in India Feb 11, 2010 Tags: India, Retail, Wal-Mart ‗In most countries, supermarket chains create and manage well-oiled supply chains to offer consumers lower prices and dampen inflationary trends. Inflation in India is touching decadehighs. But then it‘s a fallacy that in India it is always about low price‘. Companies like Tata, Birla and Reliance have all attempted to enter food-and-grocery retailing in India with mixed success. Will Wal-Mart’s supply chain work in India? Contents 1. Introduction – Wal-Mart‘s first store in India 2. Joint venture with Bharti Enterprises 3. About Wal-Mart 4. Wal-Mart – Background Note 5. Wal-Mart – Timeline 6. Wal-Mart – Quick Facts 7. The world‘s largest retailer isn‘t new to India 8. India‘s first special skills training centre 9. Exhibit – Wal-Mart‘s business model in India 10. Mera Kirana programme 11. Exhibit – Foreign hypermarket chains in India 12. Wal-Mart Internationally 13. Exhibit – Wal-Mart and Expansion into International Markets 14. Wal-Mart‘s imperfect success record in a foreign country 15. Cost-Leadership Strategy- Wal-Mart‘s core philosophy – EDLP (every day low prices) 16. Will Wal-Mart succeed in expanding outside the U.S.? 17. Best Practices and lessons from the International Markets 18. Wal-Mart India – Plans and Challenges 19. Wal-Mart‘s Strategy and Supply Chain tuning for India 20. Physical and Regulatory Challenges 21. The Indian Consumer 22. Bringing private label suppliers to India 23. Will the kirana store go out of business? 24. Advantages of a small Indian shopkeeper – The Kirana store 25. Exhibit: Wal-Mart – Store Formats 26. Exhibit: Wal-Mart – International operating formats 27. Questions for Discussion Sample Page/Content "India is a price sensitive market and therefore we will be devising our strategy for her very carefully…Retailing is like a game of three dimensional chess where we operate as a local,
regional and global player, so depending on the needs of the market we shall change our format and adapt." – John B Menzer, President and CEO, Wal-Mart International. "India is not a homogeneous market, so ours is not a cookie-cutter approach from the U.S. …Wal-Mart is in no hurry to unfurl the Wal-Mart flag nationally. The easiest thing is to roll out stores, but the most difficult is to sustain and feed them." -Raj Jain, President of Wal-Mart India in May 2009. "Wal-Mart operates with multiple private brands around the world. In each market that we operate, we look to be local. We treat each market as unique and India, in this respect, is no different." -Arti Singh, vice-president of Corporate Affairs at Bharti Wal-Mart. 1. Introduction – Wal-Mart’s first store in India In December 2006, Wal-Mart Inc. believed that by the year 2015, 35% of India‘s retail sales could be from chain stores . This was a radical increase from the prevailing 2%. In May 2009, Wal-Mart was ready to open its first store in India. The reason for Wal-Mart‘s entry in India was clear – The Indian middle class . The world‘s biggest retailer had been silently working on its strategy for India for around two years. Mom-and-pop stores and traditional distribution networks dominated the $375 billion Indian retail market. Wal-Mart‘s first outlet was set to launch in the city of Amritsar, Punjab in North India. The first store air-conditioned and built over 50,000 sq. ft. was on the outskirts of the city, Amritsar. The store employed 200 locals and was likely create 500 indirect jobs. In the first few weeks itself, the company had managed to sign on close to 35,000 members. However, the debut outlet was not to carry the familiar WalMart brand. Did this mean Indian consumers could not benefit from Wal-Mart‘s everyday low prices? Download PDF file to read more. Case Updates/Snippets
50:50 joint venture: In India, Wal-Mart has a 50:50 joint venture with Bharti Enterprises in the wholesale cash-and-carry segment. Direct Farm Program: Multinational retail giant, Wal-Mart‘s Direct Farm Program in India is a partnership with 110 small and marginal farmers near Ludhiana in Punjab where it encourages cultivation of safe, high-quality, seasonal vegetables. Farmers are advised at every stage of cultivation by field agronomists. Farmers learn about nursery management, transplanting, nutrient management, as well as harvest and post-harvest practices. Wal-Mart India in 2010: In 2010, Bharti-Wal-Mart plans to launch seven Best Price Modern Wholesale Cash-And-Carry stores across India. These stores will be 100,000 sq ft in size and each store will involve an investment of $6-7 million. Sourcing from India: Wal-Mart has a large sourcing business in India. The retail major sources goods worth $125 million a year from Punjab. In 2010, Wal-Mart is planning to increase sourcing from India to strengthen its global business.
Preference for Kirana/local retailers: According to a survey by ASSOCHAM in early 2010 in which it interviewed 5000 shoppers in various cities in India, kirana stores (mom and pop stores) and local retailers were the preferred destination for shoppers as compared to shopping malls. The survey found that goods were less expensive (as much as 25%) in local kirana stores as compared to big shopping malls. Smaller stores also offered more variety and affordable options with sustainable quality at a negotiable price (reduced margins). Training centers: Inheriting a model from its U.S. parent, Bharti-WalMart (Best Price Modern Wholesale) intends to set up its own training centers to train less-privileged youth to work in retail stores. FDI in retail in India: In India, the Government did not allow foreign investment in multi-brand retail. It allows 51% FDI in single-brand retail and 100% in wholesale venture. (Update: The Indian Govt. has changed its policy towards multi-brand retail in Nov 2011) In 2007, Walmart Stores and Bharti Enterprises entered into a joint venture and began cash & carry stores under the brand Best Price Modern Wholesale. Carrefour in India – Carrefour Wholesale Cash & Carry: In December 2010, Carrefour, the French international chain, launched its first cash & carry store in India (in the capital in New Delhi). The store with an area of 5200 square meters offers about 10,000 SKUs in food and non-food to local businesses, restaurants and local mom and pop stores. METRO Cash & Carry in India: In 2003, METRO Cash & Carry entered the Indian market in the self-service wholesale category. By early 2011, it had six wholesale distribution centers in four major cities (Bangalore, Hyderabad, Mumbai and Kolkata). The company caters to business customers (hotels, offices and small retailers) and sources a large part of its products locally from local suppliers, co-operatives and selfhelp groups. WalmartLabs in Bangalore : In addition to its R&D centre in the Silicon Valley, WalMart plans to set up another facility in Bangalore, India (expected to be set up by Dec 2011) with about 100 developers to work on technologies and solutions for Wal-Mart‘s global e-commerce business.
With Sam Walton‘s brainchild Walmart about to enter India, many questions surrounding its size and proliferation are doing the rounds. What format will the stores assume? How big will they be and will the company stick with Bharti for this venture as well? Many of the answers to these kinds of questions will be definitively laid out as the months go by and clarity emerges on how exactly the $447-billion retail behemoth plans to set up shop here. However, much of the writing is already on the wall. For instance, if you are looking forward to a large-format hypermarket store measuring 100,000 to 250,000 sq ft, complete with garden centres, pet shops, a pharmacy, and the rest of it, the world‘s largest retail chain is sure to disappoint. Multiple formats According to Raj Jain, president of Walmart India, large-format stores are not an option as far as the Indian market is concerned. He cites the dearth of space and steep real estate prices in the country as reasons for rolling out smaller stores — anywhere between 10,000 and 50,000 sq ft.
―Maximising the space productivity is going to be key to running a successful business. So, our formats will be invariably smaller than what is available internationally.‖ WALMART’S UNIVERSE Global revenues
$ 447 billion
Employees
2.2 million
Store locations
8,970
Countries
15
Owners
The Walton family
Listed on
NYSE
Brand names
62 different ones across the world
Store formats
Supercentres, discount stores, Walmart neighbourhood markets
There may be multiple formats too, to serve the large cities that have complexities in real estate and licence permit issues. The formats might include neighbourhood stores and compact hypermarkets (or supermarkets), among others. Neighbourhood stores are typically around 3,000 to 4,000 sq ft in size and the compact hypermarket outlets measure anything between 40,000 and 50,000 sq ft. Walmart‘s change in its store format strategy for the India market is also linked to the policy on foreign direct investment in retail that allows chains to only open stores in towns that have a population of a million- plus. Since these will be large, urban towns, availability of real estate is an issue. Foreign goodies Possibly the most controversial of issues surrounding Walmart‘s entry is the nature of the goods it sells. Opposition parties led by the Bharatiya Janata Party (BJP), continue to raise a storm over Walmart filling its shelves with Chinese products. BJP leader Rajnath Singh said the decision on FDI in retail would harm the country because multinational companies like Walmart are buying 80 per cent of their goods from countries like China. ―India will become a dumping ground for Chinese goods.‖ This is a misconception that both Walmart and Bharti are trying hard to dispel. Rajan Bharti Mittal, vice-chairman and managing director of Bharti Enterprises, the company waiting to sign a retail JV pact with Walmart, retorted by saying, ―Whether it‘s in Brazil or Mexico, Walmart sources locally‖. The business of import just does not work, pointed out an industry analyst. In India , the venture plans to source 90 to 95 per cent of the products locally. The only foreign stuff that could be sold at Walmart India would include some toys, appliances, olive oil etc. As for food items, around 98 per cent of the total is likely to be sourced from India. In India, the average invoice is likely to be low and number of transactions higher, thereby pushing up the staff strength.
The Walton family-owned retail giant from Bentonville, US, wants to offer its trademark ―everyday low prices‖ in India. ―It is all about not running promotions all the time and enticing customers to spend more money on items that are on promotion, but to let them buy whatever is on their shopping list at the best price,‖ Jain had said in a recent interview to Business Standard. Replying to a question, he pointed out that the no-questions-asked ‗return policy‘ of Walmart would be replicated in India as well. Whom to partner with Whether the Walmart venture will get to brandish its name will depend to some extent on whom it partners with. The American chain has kept its cards close to the chest, though Jain calls Bharti Enterprises Walmart‘s ―natural partner‖. After all, the two have been together in a 50-50 JV for cash-and-carry (wholesale business) for five years. Walmart also supports Bharti Retail‘s Easyday stores with back-end infrastructure support. But, ask Jain if Walmart would tie the knot with Bharti, and he‘s non-committal. ―All I would like to say is that we have had a great relationship with Bharti over the past five years. They are our natural partners in India. We would obviously like to explore that,‖ said Jain. ―But, let‘s see,‖ he adds. Jain didn‘t deny there was room for talks with other potential partners either. According to him, ―It all boils down to policy clarity in terms of what kind of partners and partnerships we need.‖ Easyday, the new Walmart? If Walmart and Bharti get together in the venture‘s front-end, there could be at least half a dozen issues that need to be untangled. The brand name is one, and it is not the most significant by any account. Mittal pointed out that the Easyday brand name could be retained as it had established itself in the country already. There are around 200 Easyday stores in India. ―Walmart is not in the habit of insisting on its brand name,‖ pointed out Mittal. In the UK, Walmart stores are called ‗Asda‘, in Mexico ‗Walmex‘, and ‗Seiyu‘ in Japan. Walmart has 62 brands across the world. A slightly trickier issue is that of equity holding by the partners. Jain clearly indicated that Walmart would like to go for whatever was allowed, adding that ―we are legally permitted to have 51 per cent in the venture.‖ Mittal, on the other hand, is of the view that if there could be a 50-50 JV in cash-and-carry despite 100 per cent FDI being allowed in that business, a 50-50 partnership was a possibility even in front-end retail with Walmart. Walmart’s India terrain
Signed a 50-50 JV with Bharti Walmart in 2007 for cash-and-carry and back-end infrastructure Opened first cash-and-carry outlet in India in 2009, and now has 17 of them in the country Walmart refers to Bharti as its natural partner, but is yet to take a final call on retail partnership
Bharti Retail’s Easyday map
Of the 195 easyday outlets, 47 are located in states (UP, Chhattisgarh, Karnataka, MP, and HP), which are against foreign investment in multi-brand retail.
Another 69 are in Punjab, being ruled by the Akali Dal-BJP combine. Punjab is yet to arrive at a decision on whether or not to allow multi-brand FDI, but it is likely to say ‘yes’ sometime soon. Easyday operates in more than 100 cities of India, many of which have a population of over 1 million.
How states/Union Territories view Walmart’s entry
The states/UTs which are favouring FDI include Delhi, Assam, Maharashtra, Andhra, Rajasthan, Uttarakhand, Haryana, Manipur, Daman & Diu and Dadra and Nagar Haveli. J&K is also endorsing it. Those opposing the move are Bihar, Karnataka, Kerala, Madhya Pradesh, Tripura, Odisha and West Bengal, among others
Roadblocks The real hurdle for the Walmart-Bharti JV, however, could be the retail policy conditions that stipulate that states have a free hand in deciding where foreign chains will be allowed, with only a certain number of cities with a population of a million-plus permitted to have such stores. Since the 200-odd Easyday stores are already spread across the country, getting the math right on FDI — for only the friendly states and permitted cities — could well be a challenge. ―Clearly, a panIndia approach would have been much better than a state-wise one. But you have to make a beginning,‖ says Jain. Also problematic are the investment conditions — bringing in at least $100 million FDI and spending 50 per cent of that on the back-end within three years of the FDI induction. The interpretation is that the foreign investor must bring fresh funds, and therefore tying up with a running Indian chain could pose a problem. ―My understanding of the policy is that the investment of a $100-million FDI will have to go into new stores and new back-end infrastructure. And that‘s what we intend to do,‖ says Walmart‘s Jain. Assuming that Bharti and Walmart do ink a pact for retail, will there be a rejig of the cash-andcarry business? While pointing out that Walmart will continue to stay committed to the cash-andcarry business, Jain said, ―Over the next 60 days, we will determine what our relationship with Bharti will be like, whether there will be any rejig of the cash-and-carry equity structure or not.‖ Another option? Due to policy roadblocks, it‘s possible that Walmart chooses the bigamous route — stay married to Bharti for cash-and-carry, while opting for a different partner for front-end retail. It‘s not strange to switch partners. In fact, Bharti was in advanced talks with UK‘s Tesco for a retail JV and finally threw a surprise by coming together with Walmart. Tesco later joined hands with the Tatas for the back-end. Even French chain Carrefour was believed to be in serious talks with Kishore Biyani‘s Future group, but left it midway. For the cash-and-carry venture, Carrefour went on its own, unlike Walmart, which showed commitment through its engagement with Bharti in a business which need not have any Indian partner.
Even so, a source pointed out that there are no obvious signs of a break-up between Walmart and Bharti at this point, and there might not be one eventually. ―Bharti has proven useful in the process culminating into FDI in retail. That gives them strength on the negotiating table,‖ the source said. At the same time, ―Aces have moved from Bharti‘s hand to Walmart‘s, now that FDI has been allowed,‖ he added. So, it‘s a case of trying to negotiate the best deal in a complicated policy environment. Arvind Singhal, chairman of Technopak Advisors, however, asks, ―If not Bharti, then who? I don‘t think they would look at any other partner. They have been with each other for five years and have an understanding.‖ A top representative of an accounting firm, who did not want to be named, argues, ―There‘s no big case for
Washington/New Delhi, Dec 9:
Global retail giant Wal-Mart — waiting for years to open its supermarkets in India — has been lobbying with the US lawmakers since 2008 to facilitate its entry into the highly lucrative Indian market. As per the lobbying disclosure reports filed by Wal-Mart with the US Senate, the company has spent close to $25 million (about Rs 125 crore) since 2008 on its various lobbying activities, including on the issues related to ―enhanced market access for investment in India―. ‗DISCUSSIONS ON FDI‘ In the last quarter ended September 30, 2012 itself, the company spent $1.65 million (about Rs 10 crore) on various lobbying issues, which included ―discussions related to FDI in India‖. During the quarter, Wal-Mart lobbied for its case with the US Senate, the US House of Representatives, the US Trade Representative (USTR) and the US Department of State, as per its latest quarterly disclosure report. The companies are allowed to lobby for their cases in various departments and agencies in the US, but they are required to file their lobbying disclosure reports every quarter with the US Senate. So far in 2012, Wal-Mart has spent more than $3 million or about Rs 18 crore on its various lobbying activities, including those related to India. As per Wal-Mart‘s lobbying disclosure reports, the company has continuously lobbied for its India entry since 2008, except for a few quarters in 2009.
Indian government recently opened up its multi-brand retail sector for foreign companies after years of political opposition and a Parliament motion against this decision was defeated last week in both Lok Sabha and Rajya Sabha. The US-based supermarket chain operator Wal-Mart Stores, which has an annual turnover of $444 billion and a worldwide headcount of 2.2 million, has been eyeing for a long time to enter India. The Indian retail market is estimated to be worth about $500 billion currently and is pegged to cross $1 trillion mark by 2020, given the rising personal income and growing consumer spending trends. FAVOURABLE DESTINATION According to a report by global consultancy major AT Kearney, the organised retail is expected to reach 25 per cent of the overall market by 2020. The report also said that India remains one of the most favourable destinations for international retailers and an accelerated retail growth of 15-20 per cent is expected over the next five years. Keywords: Walmart, Walmart lobby bill, fdi in retail, multi brand retail in India, India retail sector
FDI in retail: Walmart firms up India strategy, to launch first store in 18 months BT Online Bureau Hyderabad Last Updated: September 27, 2012 | 12:46 IST Tags: FDI in retail | Foreign Direct Investment | Walmart | Bharti Walmart | multi-brand retail STORY TOOLS
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Walmart, the world's largest retailer, is firming up plans to open its first store in India in about 18 months from now, boosted by the government's move to allow foreign direct investment (FDI) in retail. Walmart India President and Bharti Walmart MD Raj Jain has said they would firm up their retail strategy in the next 30 to 45 days. "It is too early to share any details. Over next 30 to 45 days we will clear our plans and share with the media," he said. Raj, however, said they would have to study the FDI policy in detail as the government wanted a separate company to make an application to Foreign Investment Promotion Board (FIPB). "The policy announcement on retail is only nine days old. It is too early to share information like how many stores we will be opening. We are working on that," he said. "It normally takes 12 to 18 months after you start planning opening a retail store. Our thinking is that it will take 18 months for us to be able to do that," Raj said, after launching a Bharti Walmart Best Price store in Hyderabad. "We are very positive and happy with the policy. I think it is a good way to start the operations. Once you demonstrate you are adding value, you are here to stay, making investment, bettering lives of customers as well as suppliers, I am sure lot of governments will embrace this investment because everybody wants jobs, investment and prosperity," he said. Bharti Walmart, a 50-50 joint venture between Bharti Enterprises and Walmart Stores Inc, now has 18 wholesale stores in the country. When asked if the two companies will have the same equity holding for their foray into retail stores, Jain said: "We will have to see. There are a lot of options. We need to discuss them." Raj did not believe that they have to wait for other states to open retail for FDI. "I think there are enough (eight) states which have agreed. Big states like Maharashtra and Andhra Pradesh have expressed their willingness to allow FDI. I think these states are big
enough to start our operations," he added. On the central government leaving it to states to allow FDI, Raj felt it is a calibrated and cautious approach in view of the concerns expressed by some political parties. "The government is asking companies like us to demonstrate that we can make a meaningful difference to the lives of consumers and farmers. It is a good challenge. We accept that challenge. Once we demonstrate that it has no negative impact on small shop owners, other states will open as well." He also indicated that their first retail store could come up in Andhra Pradesh. "Andhra is a progressive state. It is a very large market and a large agrarian society. We will invest in backend in Andhra, will integrate back with farmers and manufacturers and bring their products both in retail and wholesale stores," he said. Raj denied that they were unhappy with the government's condition of bringing $100 million fresh FDI in the first three years, half of it into back-end infrastructure. "We are happy with the announcement. We are very willing to make these investments," he remarked. On the government's conditional retail sales outlets be set up only in cities with a population of more than 10 lakh, he admitted that this would restrict them to few cities in every state. He identified the huge cost of real estate in large cities, inefficient supply chain and training people as the three major challenges for the retail industry.
