The $320 billion Wal-Mart is finally here through a 50:50 joint venture with Bharti Enterprises but will run only a 'cash and carry' or wholesale operation.
The idea, says Rajan Mittal, managing director, Bharti Enterprises, is to set up about 14 large warehouse-sized outlets of about 60,000-100,000 square feet on the fringes of metros and in tier II cities.
Mittal says these will cater for the smaller 'kiranas' and also bigger retailers. "We can learn a lot about the back-end from a global giant that sources $20- 25 billion worth of goods from countries such as China," he points out.
That means shoppers will have to wait a while for Wal-Mart's "everyday low price' that the Arkansas-based retailer is known for. In the meanwhile though, they may just find some good bargains in the kiranas that Wal-Mart plans to supply to.
Says Narayanan Ramaswamy, director, KPMG, "Wal-Mart may be constrained at the front-end, but it can use its legendary sourcing skills to supply products at competitive prices to small retailers."
Adds Abheek Singhi, partner, The Boston Consulting Group, "FMCG firms will definitely want to channel some part of their sales through the cash and carry route. And Wal-Mart is likely to collaborate with them to reduce inefficiencies in the supply chain."
Now that manufacturers will have another route to reach out to small retailers, they may just want to take a closer look at the way they're selling.
With 14 stores in seven years, Wal-Mart doesn't look like it has an ambitious target but then the giant retailer is known for its legendary sourcing skills; it may have stores on four continents, but it has vendors on five.
So suppliers may need to work towards achieving a balance between their existing distribution networks and selling to a big wholesaler. The objective would be to protect their profit margins at the same making sure they have adequate reach and visibility.
"FMCG firms will not want to jeopardise their existing distribution network, especially players like Hindustan Unilever, for whom it is a major strength," points out KPMG's Narayanan adding that, "at the same time suppliers cannot also afford to ignore a Wal-Mart."
Upamanyu Bhattacharya, CEO, Piramyd Retail, which runs the TruMart chain of convenience stores, too believes that FMCG companies will need to figure out a way to sell to both their existing distributors and Bharti Wal-Mart (both of which would sell to the smaller 'kiranas') on similar terms.
"The bigger firms will not want to hurt their existing distribution that have so painstakingly built up. But many of the smaller suppliers might not mind selling to a wholesaler, it may be easier for them," he adds.
While suppliers normally offer better margins to wholesalers, if they pick up large quantities, R Subramanian, chairman, Subhiksha, observes that currently there isn't too much difference in the prices at which FMCG firms sell to the various retailers.
He believes it might actually be in the interests of big suppliers to continue to nurture their own distribution channels rather than create one big buyer that can dictate terms to it in the future. "I doubt if there would ever be a situation where an HUL would sell at a better price to Bharti-Wal-Mart than to us, he asserts.
However, BCG's Singhi feels that FMCG firms will want to push through some portion of their sales through the cash and carry route.
"Also, they will want to make sure that the final price to the retailer is not different because undercutting by distributors is not healthy for the system," he points out.
A new buyer may actually help manufacturers, says Andrew Levermore, chief executive officer, HyperCity Retail, "If Wal-Mart is able to roll out quickly, then their sourcing of local products will have a positive impact on our domestic manufacturers," he says.
Levermore believes that Wal-Mart will undoubtedly bring new standards to Indian retail. "I expect their entry will prompt many upgrades and re-thinks from existing players, " he notes.
Perhaps shoppers will feel the difference in the retail outlets that Bharti Retail plans to start rolling out early next year. Mittal says the technical collaboration, that Bharti Retail has with Wal-Mart for systems and processes, will make a difference to the stores in the way they look and are run.
Low prices are a given and it's the shopping experience that will really count. Existing retailers are not losing too much sleep over the entry of another retail chain; the market at $320 billion, they claim, is large enough for more players.
But India is a price conscious market and the beast of Bentonville is known for its low prices. Even in affluent societies, the words have a strong impact; in a country like India, they can be even more powerful.
THE INDIAN RETAIL LANDSCAPE
Market size estimated at around $320 billion
Growing at about 5 per cent annually
Penetration of organised retail is about 3 per cent, 97 per cent catered for by mom & pop stores
Organised trade is estimated to hit 10 per cent of total retail by 2010
Organised trade tipped to grow at 35 per cent CAGR
35 million sq ft of space already in use by modern trade
21 million people employed by the sector
