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Wal-Mart may adopt neighbourhood store format in India

Wal-Mart may adopt neighbourhood store format in India
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First Published: Sun, Feb 11 2007. 11 08 PM IST
Updated: Sun, Feb 11 2007. 11 08 PM IST
Away from the political backlash against its entry into India, the world’s largest retailer has been keeping domestic rivals guessing about the format it will adopt in this country, where grocery shopping is an industry by itself.
Wal-Mart, better known for its hypermarkets and supermarkets spread over thousands of square feet, may go in for the neighbourhood-store format, keeping in mind the Indian consumer’s preference for this model.
“We expect Wal-Mart and Bharti to explore the neighbourhood-market concept because groceries are one of the largest retail categories with the least organized retail competition in India,” a former Wal-Mart advisor and US-based global retail-investment firm Growth Ventures Group’s chairman and CEO LoveGoel said.
Though foreign multi-brand retailers are barred from setting up shop in India, Wal-Mart has tied up with Bharti Enterprises to gain a toehold in the country.
While the Left parties fear the entry of multinational retail players will kill the estimated 13 million mom-and-pop stores, Congress president Sonia Gandhi, too, has joined the chorus of opposition against foreign direct investment in retail.
Even though opening up the retail sector fully to foreign players still remains an issue, domestic petrol and petrochemical major Reliance Industries has entered the field and already boasts of more than 40 neighbourhood vegetable and grocery stores in five cities.
Wal-Mart, which has a revenue of $320 billion, is the largest retailer of groceries in the US. So, it could be anybody’s guess what format it will choose in India.
Wal-Mart has often adapted itself to local needs, like in Brazil, where there is a greater emphasis on neighbourhood stores inside cities, Goel said.
However, the going might not be as easy for the company in India, where a number of retailers such as Big Bazaar and Vishal Megamart are expanding their presence with large-format neighbourhood stores and domestic conglomerate Reliance Group has already purchased land in the vicinity of residential areas in various cities for itsretail stores.
Wal-Mart and Bharti are likely to use one of Wal-Mart’s proven store models that range in size from 40,000 sq. ft for neighbourhood stores to 20,000 sq. ft for its super-centre stores,Goel said.
The US giant might also try out membership schemes to gain the customers’ loyalty in the wake of intensifying competition in the retail-market sector, the experts believe.
“With more than nine groups from Birla and Tata and Ambani investing over $1 billion in retail in the next few years, it will be important for retailers to create loyalty with customers rather than drive profit margins down by competing on price,”Goel said. Membership clubs such as Sam’s Club (being operated by Wal-Mart in the US) are a great way for retailers to offer lower prices while creating loyalty among its customers as well, according to Goel.
Experts say the relationship with Bharti could prove to be an asset if Wal-Mart decided to combine its retail concept with a direct-to-consumer approach by selling through catalogues, Internet, mobile phones and television. “In that case, not only are most orders placed on phone, but after-sales customer service is also handled through phone,” Goel said, adding it could pave the way for the most optimal, capital-efficient and fastest method for organized retail to grow in India.
According to the experts, while neighbourhood stores appear to be the best format for Wal-Mart in India, it could also try out away-from-city locations.
Wal-Mart’s approach of buying cheap land in rural or urban locations could be successful in India as proven by a number of big malls that have sprouted up on the outskirts of big cities like Delhi and Mumbai. “With the explosion in the number of automobiles and vehicles, transportation is not necessarily a limiting factor,” Goel said.
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First Published: Sun, Feb 11 2007. 11 08 PM IST
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