New Delhi: After years of unsuccessful lobbying with the government to open India’s retail market to foreign investors, US-based Wal-Mart Stores Inc. opened its first wholesale store in Amritsar in May. Wal-Mart, which has tied up with Bharti Enterprises Ltd for a 50:50 cash-and-carry joint venture, plans to open up to 15 such stores in three years. Raj Jain, chief executive of Bharti Wal-Mart Pvt. Ltd, spoke about his plans. Edited excerpts:
How has been the response to your first store in Amritsar?
We are very pleased. It’s better than what we had expected, but not overwhelming.
What have been the surprise learnings?
It has taught us a lot of lessons and we are still learning. So far, the Indian consumers have been driven a lot by promotional merchandise—one free on buying one and that kind of stuff. We didn’t want to do that. We said you buy whenever you want to buy and you buy it at the lowest prices. Our customers have been very happy and they are rewarding us by saying, “Hey, there’s a store where you can go anytime and get the cheapest prices.” It’s not that there’s a Nestle promotion today and you can attack the store and that there’ll be no promotional activity tomorrow.
Road ahead: Bharti Wal-Mart chief executive Raj Jain says the firm’s supply chain is most under-developed in India and needs to be worked upon. Harikrishna Katragadda / Mint
The second thing we are realizing is that although a lot of FMCG (fast-moving consumer goods) companies such as HUL (Hindustan Unilever Ltd), ITC, Colgate have developed a very evolved distribution system, the customers (read trade) are still very much under-served. There is a shortage of products sometimes and some things are not available. The supply chain is very erratic. But we have been able to supply consistently and at good prices.
How do you manage the supply chain?
It really starts with the suppliers. First is to have an open discussion with the suppliers. The second thing is having intricate and global IT systems in place, which are able to leverage your planning and execution. Third, we have a distribution centre we have invested in upfront. We are able to run this very effectively and we also do a good job of getting the merchandise time and time again to the right place and getting them to the store and so on. Fourth, we are working with our suppliers who are not able to meet our deadlines and commitments. I have to say that it has taken some time.
I would bifurcate suppliers into four buckets. There are the multinational suppliers, which are the Unilevers, the P&Gs of the world, who essentially know what modern retail is. They have not been geared to cater to modern retail in India and as we work with them, they are raising their standards and (we’re) getting them to supply to the modern wholesale.
The second are the big local suppliers such as Dabur. They don’t have the international experience, but have the management and the financial bandwidth to invest and to learn. We are helping them to invest, so they can see returns on their investments through their sales.
Have they been forthcoming?
Initially they were reluctant, but of late the response has been pretty good. The third set of suppliers is the regional suppliers. For example, the suppliers from Punjab and Haryana and the pickle makers—many of them are small or medium size, and they don’t have the financial capacity and the management bandwidth to invest. There, we are really holding their hand literally from the management perspective and also from the financial perspective, as much as we can do as our business grows.
How are you helping them financially, technologically?
We are helping them technologically in setting up best practices. Financially, if they are looking for investments then we go to the banks and say they are our suppliers so please do fund them for their expansion plans.
Lastly, there are government cooperatives and suppliers. They tend to be in the areas of dairy and they tend to be little bit of a challenge. Right now, we are trying to change their way of working. These are very strong brands and customers want them.
You extend such help only in India or do you do it elsewhere as well?
It happens everywhere. I think our supply chain has been probably the most underdeveloped in India because there hasn’t been any serious attempt to upgrade that. So the work required is more here.
You just stock about 5,000 stock keeping units (SKUs) in your Best Price Modern Wholesale store. What are the reasons?
The question is you have to be focused on who your customer is. We have always said in Best Price our customer is the trade, it’s not the consumer. So a lot of people who tested this model and tried to make it successful said they are the trade, but they will also buy for their personal consumption. We are not doing that.
We are only doing it for trade and it’s working for us. In my view, it gives a lot of focus on that 5,000-6,000 SKUs and we keep working on them, refining the supply chain, refining the prices and refining what the customers want.
Is there room to tweak the model further?
Absolutely. We will continue to tweak our model for several years to come.
What are the immediate changes?
I think first we have to...open more stores because what (we) have is only one store and a five months’ experience. So one can only learn that much from there. We have to open more stores and see if this can be replicated in four or five different geographies.
Second thing is, we are looking at the supply chain itself. What is the total working capital in the supply chain versus sales. Because a lot of these inefficiencies in our supply chain are resulting in stocks being very high. Therefore, our overall profitability doesn’t work in the current movement. So, how do we reduce the working capital and yet reach the efficiency level.
Are you still looking at 15 cash-and-carry stores in the next three years or are you planning more?
We have said that we would do anywhere between 10 and 12 (wholesale stores) in the next two to three years. So we can accelerate our programme more than we thought originally.
As we go ahead and as the customers continue to favour us, maybe we can look at increasing the number of stores. Based on the experience of one store, it’s difficult to say whether it’s going to be 15 or 25 outlets. The initial response has been good. The trade in this country is under-served from the availability, assortment and pricing point of view and, therefore, there is a role for this cash-and-carry format.
Will Wal-Mart continue to do cash-and-carry business even if India allows foreign direct investment in multi-brand retailing?
Based on our one-store experience, I would say yes. There is a place for both organized retail and organized cash-and-carry for trade.
And the beauty of the model lies in the end—the organized cash-and-carry will serve the existing retail trade to be competitive with the organized trade. That’s how the government needs to look at (it) because, I think, both can play a significant role. The small kiranas (small stores) will be better serviced by the cash-and-carry than by the traditional wholesalers.
What percentage of your SKUs are skewed towards the ‘kiranas’?
I would say 70% of our SKUs are only for kiranas, and the balance is for offices, institutions and restaurants. Large chunk is for kiranas and resellers.