The Hindu Business Line : We will co-exist with the mandis, says Wal-Mart

New Delhi, Aug. 7 With trade pundits touting it as the tie-up that could possibly change the country’s retail scenario forever, both players Bharti Enterprises and Wal-Mart Stores Inc prefer to focus on the benefits small manufacturers, retailers and farmers will be able to derive from their joint venture cash and carry business.

In an interview with Business Line, Mr Raj Jain, Wal-Mart India, CEO, spoke about the benefits to the marginalised players, competition, pricing strategy and private labels.

You had announced a franchise agreement with Bharti Retail yesterday. What does it entail and what kind of royalty does it involve?

Our franchise agreement involves extending to Bharti Retail technical know-how and processes, information technology, best practices and staff training.

For this, Bharti will pay us cost and charges and expenses incurred. Regarding royalty, this will only arise if our brand name is used for products. The decision on branding will be taken subsequently and only after that we will decide on the percentage of royalty they will pay us.

When announcing the cash and carry joint venture, you and Mr Bharti emphasised that this would lead to a reduction in wastages in the fresh fruits and vegetables business. How much do you estimate the wastage to be at and how far will you be able to reduce it?

We can put the wastage at 30 to 40 per cent of perishable farm produce.

Through supply chain efficiency, we feel we can reduce it to half. That is one element. The other element is working with farmers to improve crop yield.

Our effort would be to help them improve quality and quantity along with partners. Currently no one is giving feedback to the farmers on consumer demand; we would like to do that.

What exactly is Bharti bringing to the table on the wholesale front? When 100 per cent FDI is allowed in cash and carry, why do you need to strike a joint venture with Bharti?

Bharti has a deep understanding of India and its market and has 40 million customers. Besides, it also has a better understanding of the realty business through its company, Bharti Realty.

This would help us to move faster on the real estate side and cut down the learning cycle in a new market.

Why have you chosen tier-II and -III cities for your B2B business? Would not offtake be more from the top cities?

The kiranas and small businesses here are underserved, while metro distribution channels are more evolved.

Within these smaller towns and cities, how many people do you estimate to reach?

Well, according to us, for every outlet that has an average area of 50,000-1,00,000 sq ft, the reach should be in a radius of 10-12 km. Also, the number of people we’ll be able to reach out to will depend on the geographic, demographic and social set-up of the regions.

In the face of opposition to overseas retail corporations entering the country, how do you intend to create trust and attract customers to your cash and carry outlets?

The joint venture will cater to only business customers, not consumers like you and me.

Not only will we make them aware of the quality of merchandise available through our stores, but other factors such as best prices, convenience of shopping for everything under one roof and also easy availability of difficult-to-get items.

As starters, we plan to send personal mails to these shopkeepers, restaurant owners and all other target customers inviting them to our stores so that they can first see for themselves and then make their decision.

Does that mean that this will be the proverbial death of the mandi?

No, not at all. Ours will be an alternative channel for small entrepreneurs to source merchandise and raw material. In fact, what we are doing through our cash and carry business is very small compared to the size and the demand in the market.

On the issue of pricing, how competitive will your prices be vis-À-vis competition?

Actually, since we are in the cash and carry model, there is very little competition, with Metro being the only other player.

However, whatever efficiencies we will drive in the back-end channel, we will pass it on to our consumers.

The German cash and carry venture, Metro, faced a lot of flak for selling to end consumers. How do you plan to deal with that?

Actually, there has been a long standing litigation that Metro has finally won.

However, this has prompted the Government to clearly lay out a methodology as to who qualifies as a business-to-business consumer.

Accordingly, we will be creating membership cards for our customers, who have sales tax registration or show us certificate proof of affiliation with any local business group or mandi.

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We will co-exist with the mandis, says Wal-Mart