The Hindu Business Line : The coming of Wal-Mart

Wal-Mart finally sets up its first store in India, promising benefits of price and convenience. The rest of retail India will watch with bated breath as it scales up..

Bharti Wal-Mart’s first cash-and-carry outlet, BestPrice Modern Wholesale, sets up shop in Amritsar

Bindu D. Menon

The city of the Golden Temple, Amritsar, will go down in the history of Indian retail as the first one in the country to host US retailer Wal-Mart‘s first cash-and-carry venture. Last weekend, as Best Price Modern Wholesale opened for business , curious onlookers and serious businessmen patiently queued up outside the store to witness India’s first big box outlet which promises to offer business members the multiple benefits of price, convenience, choice, quality and hygiene all under one roof.

Inside the 50,000 sq. ft. store, the over-40-feet-high scaffolding can intimidate a first-time visitor. The sheer stack of goods of all varieties literally takes one’s breath away. Frozen foods are vying for space with giant-size kitchen equipment. The tags on the shelves mention not just the price offered but also the net saving that a consumer can make on his wholesale purchase. A prospective customer could be a hotelier who has come to buy a tonne of wheat or a kirana store owner wanting to stock up his shop.

Gurdeep Singh, a small-time trader from nearby town Rajansi and a registered member, has come to check out for himself the convenience that the venture promises to provide. Waiting in the queue clutching his membership card, it surprises him that the vast store is able to cater to everything from grains to LCD screens. “If we are getting a price discount of 5-10 per cent on bulk purchases it makes sense for us to come and buy it from one place,” he notes.

This opinion is music to the ears of Raj Jain, the 50-year-old Managing Director and CEO of Bharti-Wal-Mart Pvt Ltd. Jain and the entire team have been working with gusto for the past three years to get the cash-and-carry model right in India. “We had to build up the concept to our buyers in the first place. We have made mistakes and have learnt from it. And the biggest learning has been to go slow and gradually ramp up our supply chain,” he says.

After years of controversy and opposition from local retailers, Wal-Mart has finally arrived in India. The world’s largest retailer isn’t new to India. For the past decade, the country has been an important supplier to Wal-Mart of textiles, apparel, home products and jewellery. According to Rajan Bharti Mittal, Vice-Chairman and Managing Director, Bharti Enterprises, Wal-Mart currently sources products worth over $1 billion from India.

Its wholesale operations in India are under a joint venture with New Delhi-based Bharti Enterprises. The US company’s retail presence is restricted to providing back-end support for Bharti’s chain of 25 Easy Day grocery stores that opened last year. The store, the first of 10-15 Best Price stores expected to open in India in the next five to seven years, will carry over 6,000 products.

According to Arvind Singhal, Chairman, Technopak India, “The new cash-and-carry venture will start a chain reaction. Wal-Mart has spent a lot of time on developing the supply chain and has been working very closely with vendors. It would also have a positive effect on small and medium enterprises.”

Giving the analogy of Suzuki, he said that when Suzuki first came to India, it developed the auto component supplier base. It was much later that it started producing cars in India. Wal-Mart is following a similar model as it knows that a cash-and-carry operation will require a huge vendor base. “It will be far more than what they were sourcing, which was a rather narrow assortment of products,” he said.

Says Asitava Sen, Director, The Nielsen Company, “It is a watershed moment for the Indian retail industry. Wal-Mart entering India cannot be ignored or taken lightly. However, it is too early to predict their success or failure.” On the company marching ahead minus its popular brand name, he said, “Our belief is that it is minimising its risks by not using its brand name.”

Challenges

On the biggest challenge that Wal-Mart is likely to face in India, Sen notes: “The cash-and-carry business by nature is an extremely difficult business to tackle. Considering India’s sheer size, the venture will have to give a good value proposition to the end consumers. For Wal-Mart, this could be a real challenge. This apart, the product assortment has to be far higher, in my opinion.”

So does that mean that non-FMCG products will be a big opportunity for Wal-Mart when it comes to sourcing? FMCG will continue to dominate the broader spectrum of goods. As Wal-Mart already has an established sourcing base from India, non-FMCG items can also be an area to look forward to.

Jain, for his part, is extremely optimistic that the venture will prove fruitful in India. “When we started out, we did a lot of surveys. There was intense branding research to find the right name, product assortment as well the place to open the first venture.

“Amritsar was chosen as it was a market which was full of unexplored opportunities, besides acting as a feeder market for various other cities. As supply chains have to be regional in India, it provided ample scope for us to expand our boundaries. In the coming years also the focus will be on Punjab and northern India as we want to saturate the market there before entering new territory,” Jain adds.

Sourcing and membership base

Bharti Wal-Mart has signed up 30,000 clients for its wholesale business and will buy goods from 800 local suppliers.

Murali Krishna Lanka, Vice-President (Operations), says, “Before the store was launched, we had to take the concept of a cash-and-carry operation to our consumers. Since the cash-and-carry venture is a business-to-business interface, efforts were made to educate our prospective clients. Our 160-odd associates literally went house to house to create the membership base. As most traders were keen on a credit period, we went ahead and tied up with Kotak Bank to provide them credit as the retailer by itself doesn’t offer credit on wholesale purchases,” he says. Currently, there are about 35,000 registered members.

Krishna notes that based on research and feedback of members’ professional needs, Best Price Modern Wholesale has introduced several education programmes with customised modules for different target segments. A model, ‘Mera Kirana’, is being created that will share the best practices with members and advise on using low-cost modern techniques, processes such as planning the layout, fixtures, displays, backroom, licences, safe handling, customer retention and value-added services.

In addition, different target segments are being educated on taxation, food preparation, food safety and category workshops.

“We have also tied up with a transport provider, NavBharat Transport, to help wholesale buyers ferry their goods at a nominal charge. This ensures timely deliveries and helps us give a competitive price,” Lanka adds.

Will FDI in retail add teeth to its operation?

“Yes,” says Rajan Mittal emphatically. “Why should India be deprived of investments at a time like this when funds’ infusion can scale up the retail sector? With the Government mulling changes in the FDI policy, it is in the best interest of all parties to open up the sector.” Noting that setting up of a single store costs nearly $6-7 million, he said that the funds and technical expertise foreign partners bring in will scale up operations massively.

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