Wal-Mart Stores Inc. and Bharti Enterprises Ltd have signed a joint venture agreement to roll out up to 15 wholesale stores in India over the next seven years.
Eight months after the wor-ld’s largest retailer signed a memorandum of understanding (MoU) with Bharti, the holding company of Bharti Airtel Ltd, India’s largest mobile telco, to “jointly explore” a retail business, the 50:50 joint venture announced that it plans to open cash-and-carry stores which will employ about 5,000 people. Bharti Wal-Mart Pvt. Ltd, the alliance, said it will go only to non-metro towns in the next seven years and will roll out its first store in northern India by the end of next year. The venture decli-ned to name the cities or state the investment for the roll out.
Both the firms declined to say whether the joint venture will use Wal-Mart branding for the stores. “We have an option which is there for us to use the Bharti or Wal-Mart names or Bharti Wal-Mart or an absolutely new name,” said Rajan Bharti Mittal, managing director of Bharti. “All the options are open.”
Since foreign retailers such as Wal-Mart are barred from selling directly to individual consumers in India, the US giant will also manage the logistics and supply chain of a separate retail venture of Bharti that will open convenience stores to hypermarkets nationwide in the coming years and invest up to $2.5 billion in the business by 2015.
The two firms have signed a separate agreement for Wal-Mart providing technical know-how to Bharti for running its own stores. India allows up to 100% overseas investment in wholesale or cash-and-carry businesses that sell only to other retailers and businesses. It also bars foreign retail chains stocking multiple brands from selling to individuals.
Mittal said Wal-Mart would be the “natural choice” to par-tner its front-end or consumer stores business in the event of India allowing overseas retailers to sell directly to consumers. “If and when the law of the land changes, and it will change I think, from our point of view it (Wal-Mart) will be a natural choice” for front-end stores as well, he said.
Ever since the two firms inked an MoU in November 2006, the alliance has been the focus of opposition from various quarters—from the smallest hawkers to influential politicians. Organized retailers have faced strikes protesting their entry on grounds that this threatens the survival of small shopkeepers because large firms will be able to buy in bulk and offer discounts.
A letter to the government from Sonia Gandhi, the chairperson of the ruling United Progressive Alliance, urged caution in allowing overseas and large investments in retail and prompted the government to enlist a New Delhi-based think tank to survey the impact of organized retail on small shopkeepers, farmers and?other?unorganized?groups. The final results of the survey are awaited.
Bharti Wal-Mart says its business will help provide “linkages” to India’s small retailers, producers, artisans and farmers.
Raj Jain, country president, Wal-Mart, said the firm’s wholesale stores will help millions of smaller stores by enabling them to buy goods at cheaper prices. “India has approximately 12 million kirana (small shopkeeper) outlets, but less than one million of those are today serviced even by the large (consumer) company directly,” Jain said. “With 90% of those kiranas not been serviced directly... our aim hovers at the great opportunity to serve these customers,” he added.
The deal’s announcement comes days before a group of farmers, hawkers, trade organizations and opponents of foreign firms in India’s retail market are planning protests in various cities to decry the entry of large firms into the retail business.
India will be the fourteenth market outside the US for Wal-Mart, which has more than 2,500 international stores from Costa Rica to China. Analysts say India is important for Wal-Mart, especially since sales at its home market may be slowing down and India’s organized retail market is set to grow manifold. Bharti officials say India’s $300 billion annual retail market will swell to $637 billion by 2015 and organized retail will corner about 20% or $114 billion of this from about 3% at present. “India is a large market with a very bright future,” Jain said. “So, for a company like Wal-Mart, it’s an honour to be here.”