Wal-Mart fleshes out expansion plans
Bharti Enterprises and Wal-Mart have announced that they have signed an agreement to establish Bharti Wal-Mart Private Limited, a joint venture for wholesale cash & carry and back-end supply chain management operations in India, in line with Government of India guidelines. Under the agreement, Bharti and Wal-Mart will hold a 50:50 stake in Bharti Wal-Mart Private Limited.
Enhanced efficiencies across the retail sector
According to the companies, wholesale cash & carry operations provide small retailers and business owners with a wide range of quality products at competitive wholesale prices that help them enhance their businesses and profitability. The Bharti Wal-Mart business-to-business (B2B) wholesale cash & carry joint venture will serve kirana stores, fruit & vegetable resellers, restaurants and other business owners. It also will serve other retailers such as Bharti Retail, which is setting up a chain of stores in India that are 100% owned and operated by Bharti.
The wholesale cash & carry venture will invest in setting up an efficient supply chain. This will link farmers and small manufacturers directly to retailers, thereby maximising value for farmers and manufacturers at one end and retailers, and in turn, consumers on the other. The venture will support farmers and small manufacturers who have limited infrastructure and distribution strength, and the supply chain will enable minimum wastage, particularly of fresh foods and vegetables.
"We are delighted to partner with Wal-Mart for wholesale cash & carry and back-end supply chain management operations in India," said Sunil Bharti Mittal, chairman and Group CEO, Bharti Enterprises. "Wal-Mart's global expertise in supply chain and logistics will bring enhanced efficiencies across the retail ecosystem. This venture promises to bring great value to millions of farmers, artisans, small manufacturers and retailers across India. We are pleased to be a partner in developing this sector which is set to become a significant engine of India's economic growth."
Mike Duke, Wal-Mart’s vice chairman said, "We are delighted that, in Bharti, we have a well-respected partner who has a deep understanding of the local market. Through our wholesale cash & carry joint venture, we will help drive efficiencies across the supply chain and work towards the betterment of India's farmers, small manufacturers and retailers, in line with our global vision of saving people money so they can live better. We would also like to leverage our global scale to transform some of these suppliers into exporters with access to our global markets over time."
First store to appear in 2008
The first wholesale cash & carry outlet is targeted to open by the end of next year. Over the next seven years, the venture is expected to open 10 to 15 wholesale cash & carries and employ approximately 5,000 people. A typical facility will stand between 4,650 and 9,300 square metres and sell a wide range of fruits & vegetables, groceries and staples, stationery, footwear, clothing, consumer durables and other general merchandise items.
Back-end bought to the forefront
Bharti Wal-Mart Private Limited will bring modern supply chain and back-end logistics expertise to India, bringing Wal-Mart's global best practices in such areas as just-in-time inventory, retail information systems, cold chain infrastructure, GPS for truck and trailer tracking, and fuel management systems.
In addition, Bharti Enterprises' 100% subsidiary Bharti Retail, that will own and manage the retail stores, has entered into a franchise agreement with Wal-Mart which will provide technical support to Bharti Retail.
Rajan Bharti Mittal, managing director of Bharti Enterprises said, "Creating a strong back-end infrastructure will be one of the critical components in the development of modern retailing in India. This partnership is committed to bringing in world-class processes and technologies in the area of supply chain, logistics and cold chain that will be bring immense value to retailers, both big and small, across the country and ultimately benefit the entire retail ecosystem through better quality, and more choice at better prices."
"One of the key reasons for Wal-Mart's international success is the fact that in every location where we operate, we are local," said Raj Jain, country president for Wal-Mart's operations in India, who will oversee the India joint venture. "We source local products from local suppliers that appeal to local tastes, needs and fashions. As a wholesale cash & carry business, our endeavour is to work with and develop local suppliers and create local beneficiaries along the supply chain. It is our hope that big and small retailers and businesses will be our customers, take advantage of the efficiencies we provide and derive significant benefits for their businesses."
So, after months and months of speculation, Wal-Mart has finally fleshed out its ambitions for what is rapidly becoming one of the more interesting - if currently modestly sized - retail/wholesale markets in the world. Given the current regulatory climate, Wal-Mart’s hands have been tied, meaning that it has been unable to affect a unilateral entry into the retail sector. Instead, it has had to go down the joint venture route and has opted to pursue expansion into the cash & carry sector rather than consumer-facing retailing. Instead, it will be Bharti (which may or may not use one of Wal-Mart’s trading names under the franchise agreement) that will forge a presence in the Indian retail sector, with Wal-Mart providing support and know-how behind the scenes.
If anything, the plans (up to 15 stores over seven years), appear remarkably restrained given Wal-Mart’s ambition and the resources at its disposal. That said, it does not require a great leap of the imagination to envisage Wal-Mart eagerly anticipating the liberalisation of the Indian retail sector before unleashing its own retail expansion programme that will be able to build on the expertise, infrastructure and relationships that will be created through this relationship with Bharti.
By the time this liberalisation actually happens, local retailers will have stolen a march on the wide range of foreign retailers that are queuing up to dive into the sector. While the likes of Wal-Mart, Carrefour and Tesco are circling the retail market waiting to be allowed to make their move, domestic operators like Pantaloon, Subhiksha, K Raheja, Vishal Mega Mart, RPG Group, Tata and Reliance have already forged ahead, rapidly rolling out their own grocery retail concepts as well as eyeing up smaller rivals as acquisition targets.
Virtually all of the Indian retail groups have unveiled lofty ambitions for their expansion programmes, with some retailers like Reliance Retail unveiling eye-watering growth targets that have been met with incredulity from many observers. Many local retailers, however, are backed by massive conglomerates, with Bharti Retail and Reliance Retail both enjoying the financial and administrative support of huge parent companies. Planet Retail has enjoyed the opportunity to speak to a number of local Indian retail businesses, all of whom have told us that Reliance is more than capable of attaining its gargantuan growth targets.
Regarding the cash & carry side of grocery distribution market, Wal-Mart/Bharti will also face competition from players already active in the sector. German cash & carry giant Metro Group entered India around four years ago, opening a couple of outlets in Bangalore. It has occasionally struggled in the face of local opposition, yet is steadily pursuing its expansion programme with additional units planned in Kolkata, Madras and Mumbai over the next year or two.
Pantaloon, the multi-sector retailer that has opened a bewildering number of new food and non-food banners over the last two years, also dipped a toe in the grocery wholesale waters towards the end of last year, opening its first Big Bazaar Wholesale Club at Kankaria, Ahmedabad. Spread over 1,115 square metres, the store stocks nearly 600 SKUs, based on a 'high volume, low margin' model. Vishal Retail has also recently announced plans to open its own cash & carry format. In addition, the growing focus on hypermarkets among a number of leading retailers could provide another source of competition for cash & carries in the country. Reliance Retail, for example, plans to open its first hypermarket in Ahmedabad later this month.
So, Wal-Mart will be faced with a far from empty playing field when it opens up for business - major urban centres will already be more than adequately serviced by existing wholesale and distribution channels. Also, even the global leader in retail IT and supplier collaboration is likely to face stiff challenges from India’s creaking infrastructure, which guarantees that business does not always go smoothly. On the flip side, although entering the market at this relatively early stage bring with it significant risks, it will allow Wal-Mart to build up experience and a basis for further expansion while its major global rivals sit and watch from the sidelines.
Another major challenge is the growing opposition, particularly amongst traditional traders and various parts of the government, to modern grocery retailing in general. With even local chains such as Reliance Fresh being the target for protests and even vandalism, and Metro Group’s cash & carries still facing opposition, it seems inconceivable that Wal-Mart will not face an even greater backlash when it actually sets up shop. Wal-Mart’s public relations machine is used to batting away criticism in the markets where it is present, but it may well have to go into overdrive in India.
Still, the potential for Wal-Mart acting as middleman between agricultural enterprises and independent traders is immense. With some estimates putting the number of kirana stores and produce sellers well in excess of 10 million, the sort of scale and efficiency that Wal-Mart could bring to such a fragmented retail economy could be substantial.