The world’s biggest retailer Wal-Mart Stores Inc. may have pared down its initial plans for aggressively rolling out stores in the Indian market in the first few years of its operation, because it needs to develop a robust supply chain. In a May interview with Mint, Raj Jain, who manages Wal-Mart’s operations in India, said he planned to have stores in as many as 75 cities in seven years, a project that seems to have been whittled down to 15 cash-and-carry outlets. “Our initial focus is entirely supply chain and it will take us few years to fix,” said Jain. “This is the number we believe we will get - we may get there faster (or) we may get there slower.” Wal-Mart has announced plans to sell to wholesalers, an arrangement in which India’s phone service provider Bharti Enterprises will assist it as a joint venture partner. Under Indian rules, overseas investment is barred in stores selling multiple brands to individuals. Edited excerpts:
You said you will open your first store in northern India, is the choice Ludhiana?
Not necessarily. I think north India means North India and it could be a city either in Punjab, Haryana or Western Uttar Pradesh.
But why Punjab, Haryana or western Uttar Pradesh?
I think for two-three reasons. First, we said we don’t want to be in a metro to start with. We are looking at town in the neighbourhood of 1-3 million because there most of our customers are underserviced right now so the opportunity is huge. Real estate pricing is not as high as it is in a metro and many of these are very prosperous
Aggressive push: Raj Jain, CEO of Wal-Mart India says India’s infrastructure is “so archaic and so old that it is not in any way geared” towards the needs of modern (retailing).
And how many stores are you looking in the next phase?
You know it would be difficult for me to say that right now. After talking for the whole day I have begun to realize that there is lot of fixation on the number of stores and I think that’s the wrong place to start. In my views, the right place to start is when your supply chain will be ready. And the answer to that question is I don’t know, but I do know that’s a tough job and it will take at least three years to fix supply chain - at least in the North. And based on the learning, I will decide where to go next.
So, our focus entirely for the next three years is fixing the supply chain... we on the other hand have chosen to start on the back-end. Because India’s infrastructure is so archaic and so old that, it is not in any way, geared towards the needs of modern (retailing).
How many cities would each of this 15 outlets service?
Probably one city, one outlet because you know these are big boxes and you can do tons of business out of that.
But if you looking at a population of 1-3 (million) probably one is enough or maybe two.. that’s about it.
In our May interview, you spoke of going to 75 cities in India. There seems to be a dramatic paring down?
I think in the time frame we talked in May—and I cannot recollect the exact conversation we had - but we might have been talking of 10 to 12 years time frame.
You talked of the next five to seven years.
Okay, maybe it was five to seven years time frame. As we have discussed this, our initial focus is entirely supply chain and it will take us few years to fix. I also want to say that this is not a number which is like written in stone—tablets in stone—this is the number we believe we will get, we may get there faster we may get there slower. So, that’s the flexibility we keep to ourselves.
The other thing is this is going to be a hockey-stick curve and not going to be a linear curve. Which means that we open 15 stores in the first five to seven years doesn’t mean we will open 15 in the next five to seven years. It basically means that we could open a hundred in the next five to seven years. Because once you have the supply chain ready you can feed as many big boxes as you like. That’s the crux of this.
(Kishore) Biyani (of Pantaloon Retail) said in an interview with us that customers don’t care about the back-end and what we want to have is the front-end in place. As the business expands you build the back-end along with it. What you are saying is completely different to what he said.
I haven’t read Biyani’s statement in specific. I would agree to the one thing that customers don’t care the back-end, but customers do care about the experience they get. Our research has shown that customers tend to take against stock-outs, against long queues of check-out, they get errors of bills and they get merchandise, which is not fresh or not of good quality. And in my view, those are symptoms of poor back-end.
If the market opens up for FDI in front-end retailing, clearly you don’t want to be left out?
So, what have you done to ensure that you are not left out because you have a partnership going with Bharti?
If the market opens up and when it opens up, we would obviously have interest in being into (front) retail. However, how it will happen will depend on when the announcement comes and what in what form it comes.
So, honestly speaking, we have not spent too much time worrying about that. When the laws change in the country and depending on how they change we will evaluate.
Do you have leverage within your current business agreement to ensure if the sector does open out you are not left out of the game?
I think what we do have is a situation—we have a partnership at the back-end and a partnership of technology and management expertise in the front-end of Bharti Retail. I am pretty sure if this works well, it will be an option for us to consider.
Metro has been in cash-and-carry in India for a while and they have had their share of problems. What are you planning to do differently or better?
Metro has been a pioneering effort. They have learned as a result and so we have learned as a result... I think in their case, more than competition … more than their business model, the issue is more of legislation. What is wholesale cash and carry? Who can you sell? What can you do and what you cannot do? What are the overall issues involved in that? So, we have learned from all that and hopefully we will build that all into our business model and ensure that we are completely compliant.