Pratap, The Hindu Businessline
13 November 2015
Sharma, the owner of Raj Rasoi food court in Agra, cannot stop
gushing about the one-stop-shop from which he sources nearly everything
needed for his restaurant from the furniture and groceries
to decorative pieces and cutlery. Shopping on alternate days,
he saves up to ?3 lakh a month at the over 60,000-sqft Best Price,
owned by the worlds largest retailer, Walmart.
In Andhra Pradesh, every Sunday evening, Sambasivarao visits
the Best Price outlet located about 45 km from Vijayawada. It
is here that he buys the home appliances, furniture pieces, confectionary,
cereals and a range of other items that he stocks for sale at
his Sri Krishna Best Sale supermarket. The advantage: huge savings
in transportation costs and a range of products unmatched by the
other wholesalers and dealers near him.
After waiting more than seven years for the elusive government
nod for foreign direct investment (FDI) in retail, American giant
Walmart is now focusing its energies on the likes of Sharma and
Sambasivarao. It has found its mooring in the cash-and-carry wholesale
format where FDI up to 100 per cent is permitted.
Walmarts target clients include kirana or mom-and-pop store
owners, small traders, hoteliers and caterers in a wholesale market
that is pegged at $300 billion.
Krish Iyer, who took over as President and CEO of Walmart India
after the company called off its joint venture with Bharti Enterprises
in late 2013, says, Growth here (in India) is driven by
domestic private consumption and not exports. With the current
business model of cash-and-carry, where we sell to business members,
we believe there is a great potential with the fairly low penetration
of modern retail.
India will buy
Globally, by 2020 the mom-and-pop-store business is expected
to grow by $800 billion, of which $140 billion will be in India,
according to industry estimates. It is an attractive market.
We have established a good business model and are happy with our
current performance. That makes us bullish about investing further
in India, says Iyer.
He had to virtually rebuild Walmart India after the company was
involved in a lobbying controversy, followed by massive staff
exodus in 2012-13. I think it wasnt challenging (to
get moving again), but we needed a focused approach
was the logical choice.
Efforts to grow the companys customer base include a strong
digital strategy. I believe that a vast majority of sales
even in brick-and-mortar stores is digitally influenced. We have
rolled out a B2B (business-to-business) website where members
can check the products or place orders on the Web or call us at
the store and make enquires while placing an order.
More interesting is the companys hand holding strategy
for store owners, which seems to be bringing in loyal customers.
For Sambasivaraos store, for instance, Walmart sales executives
helped plan the layout, product category sequencing and even trained
store employees on standards for display and audit. Our
business development associates go to shops and hotels to sign
up new members, says Iyer. Members are enrolled within a
20/40-km radius of each outlet to ensure that customers do not
have to spend more than 30-40 minutes in commuting.
Moreover, small businesses like Sambasivaraos are saving
a lot of money by using Walmarts transportation services.
For each carton of products, Walmart charges ?11 for transportation,
including loading and unloading. Other distributors and
wholesalers charge Rs. 35 per box, says Sambasivarao. All
he has to do is go to the Best Price outlet with a list of items.
The staff pack and ready the items in 25 minutes and I am
out of the store in less than an hour. Moreover, the pricing is
transparent, he says.
For hotelier Sharma, the biggest draw at Walmart is the availability
of fresh fruits and vegetables at the most reasonable prices in
Agra. The prices are at least 15-35 per cent lower than
market rates. Moreover, they have discounts and periodic promotional
offers. Overall, I save Rs. 2.5 lakh a month. Plus, I dont
have to roam around Agra in search of quality products,
So, how is the retail giant able to offer this pricing advantage?
By investing in and maintaining a robust supply chain, says Walmart
Indias Vice-President and Head of Corporate Affairs, Rajneesh
Kumar. What works for us is the direct-to-store model. All
the suppliers we work with, such as Nestle, Coke and even SMEs,
supply directly to Walmart outlets. We undertake joint business
planning to make sure that the fill rate [inventorys ability
to meet demand] of the product is good.
Apart from an annual planning exercise, a Walmart team interacts
regularly with the companies to iron out issues on a real-time
basis. Our software, Retail Link, provides suppliers with
the information they require around replenishment, says
To strengthen its supply chain, Walmart is moving to procure
directly from farmers in all the states where it operates. So
it stocks apples from Himachal Pradesh, onions from Nashik, sweet
lime from Telangana and a range of vegetables from Punjab and
We source directly from farmers to get fresh produce at
the right price, so that our members can pass on the savings to
the end-customer, Kumar says. In Hapur, Lucknow, Telangana
and some areas of Maharashtra, Walmart is working with irrigation
companies and introducing best agricultural practices to farmers.
Yet, farmers are free to sell to other regions and retailers and
Walmart does not enter into any exclusive tie-ups with them.
As it works overtime to get the backend right, Walmarts
store expansion rate has been slow 21 stores across India.
Iyer explains that the company requires about four acres to build
a 50,000-60,000-sqft store. That takes time. Acquiring real
estate is a time-consuming activity in terms of legal requirements
and due diligence, he says. Walmart has leased most of its
properties, but Iyer says the company is prepared to buy land
also, if an opportunity arises.
Battle for every store
Devangshu Dutta, chief executive at consultancy firm Third
Eyesight, says Walmart has a model that works, but not necessarily
It requires a certain type of real estate, which is
not easily available in metros and big cities. That
perhaps explains why the giant is focusing on tier 2 and tier
The penetration of mom-and-pop shops and traditional
stores continues to be higher in tier 2 and tier 3 cities. They
are attractive opportunities and make sense, says Dutta.
Walmart aims to add at least 50 stores to its portfolio by 2020.
But can a new player compete effectively with the likes of Metro
Cash and Carry, which has been around since 2003, or a local giant
like Reliance? Yes, believes Iyer. We have our
own membership data and we know what a member would want in Punjab
or UP or Telangana. By understanding these preferences and basing
the decision on this customer data, we are able to meet the specific
needs of buyers, he says.
Dutta agrees: At the end of it, retail is a very local
business. And it is dependent on how well you address the customer
segment in a given geography. Just being a large or established
retailer nationally or globally is no guarantee for success. It
ultimately comes down to fighting each store battle independently.
And how well-armed Walmart is will become apparent in the next
(Published in The