8/8/2019 Walmart in India- Challenges and Opportunities
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Wal-Mart in India - Challenges and
Opportunities
Bharti Wal-Mart Pvt. today (May 31, 09) opened the
cash-and-carry store in the northern city ofAmritsar. This week,
the two companies finalized a 50-50 joint venture to go into the
business-to-business, cash-and-carry wholesaling sector. The
venture plans to open 10 or 15 wholesaleoutlets and employ 5,000
people during the next three years.
For a retailer of Walmart's size with a turnover $285 billion,
future growth can come only fromnew markets. The size of India's
retail trade is estimated at $206 billion and growing at five
percent annually, according to KSA Technopak, a retail advisory
which closely tracks the trade.
It is not exactly something to be sneezed at. Large retailers
like Dairy Farm International ofHong Kong and Metro Cash and Carry
GmbH of Germany that have tied up with the RPG group
and Metro Cash and Carry India Pvt Ltd respectively, have raked
in considerable profits. The JVnow styled under the brand name
Spencer, already has sales at more than $100 million. DairyFarm
operates 45 stores under the Food World brand name.
The Indian retail scenario is booming and Indian retailers are
doing well across the board.Current profits in the organised retail
trade are good and the future seems even more alluring.The average
urban consumer is saving less today than he did a few years ago and
importantly,spending his income on a wider array of goods than
earlier. The current mood of the market isexpansionist with
consumers willing to lap up newer and better brands. By 2012,
organizedretailers are projected to account for 16% of the retail
market, up from 4% today.
Worldwide, the whole Wal-Mart business revolves around running a
very efficient supply chain,saving in every aspect of that supply
chain. It's not just about negotiating better prices with
thesuppliers; it is actually about working with suppliers to remove
inefficiencies in the supply chain.
However, the biggest problem facing Indian retailers and
consumers is a dysfunctional supplychain. Because the market is
highly fragmented -- about 96% of the retail marketplace consists
ofsmall shopkeepers -- economies of scale are elusive and both
producers and retailers depend onlong chains of middlemen to bring
goods to market.
The typical Indian consumer pays five times the amount the
farmer actually receives. In the U.S.,the ratio is closer to
2-to-1. Also, about 60% of the value of India's agricultural output
is lost
between farm and market, due to processing delays and "wear and
tear". To haul a load over1000 miles, it takes about 4 5 days for a
trucker in India, while the same is done in 20 hours inthe U.S
currently!
Also, India is a price sensitive market and therefore WalMart
has to devise its strategy verycarefully. Retailing is like a game
of three dimensional chess where WalMart operates as a
local,regional and global player. So depending on the needs of the
market they would have to changethe format and adapt.
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WalmartInternational, sourced approximately $1.2 billion worth
of merchandise from India lastyear and are aiming to increase that
by almost 30 per cent every year, thereby doubling thesourcing in
the next three years. Products that are sourced include apparel,
fine jewellery, hometextiles and houseware. Known for the strict
quality standards, and tight price levels it enforces,Walmart
nonetheless has suppliers eager to supply merchandise to it. Some
of Walmart's
suppliers are already enhancing their production facilities in
anticipation of growing business.
If all goes as per plan, in the next 5 years WalMart should have
several cash-and-carry
operations in the important geographies in India, if not across
the country. Also some valuablelessons would have been learnt!
