New Delhi: Wal-Mart Stores Inc, the world’s biggest retailer, will accelerate its rollout of wholesale stores in India, a crucial growth market that has long frustrated overseas operators with restrictive rules.
Raj Jain, chief of Indian operations for Arkansas-based Wal-Mart, said the firm now expects to open 10-12 wholesale centres in India over two-to-three years, from an earlier target of five years, as real estate prices have become more attractive and it gains confidence in operating in the country.
Food price inflation and the need for food security should spur the government to open the sector to foreign direct investment (FDI), he added.
”We will quicken the pace of expansion,” Jain said in a late Tuesday interview at his offices in Gurgaon, a fast-rising suburb of New Delhi that houses a host of multi-nationals.
”We have more confidence in running the stores, we feel more confident about real estate compared to two years ago,” he said.
Retail rents fell by 30-40% from late 2007 peaks.
Wal-Mart currently runs wholesale operations in India in an equal partnership with India’s Bharti Enterprises.
India’s $450 billion retail sector is dominated by small local operators, a powerful constituency that has stood in the way of foreign multi-brand players such as Wal-Mart and No.2 Carrefour being allowed to operate their own retail stores.
Instead, foreign players must operate through franchise tie-ups with local partners or operate cash-and-carry, or wholesale, outlets of the kind Wal-Mart is rolling out.
While the government is yet to liberalise rules for foreign retailers in India, Jain said India has moved beyond the question of whether or not organised retail is positive for the country.
”Everyone realises this country needs organised retail and that it won’t overnight replace mom-and-pop stores,” he said, sitting at a conference table adorned by a small shopping trolley filled with candy.
Food inflation is a nagging problem in India, eating into disposable incomes and prompting political protests. Some 40% of fresh produce in India, which has a population in excess of 1.2 billion, is wasted due to inadequate supply chains and lack of cold storage.
Jain said opening retail to foreign investment would enhance food distribution and security, which the government realises.
”Now it’s a question of having the political will and the timing of the decision,” he said.
”I think the current government is focused on having a more open debate and the food inflation makes people understand that even when there is a good monsoon, food security and food distribution are serious issues. And so this is one of the levers the government is willing to use,” Jain said.
Big, untapped market
India’s potential for retailers is massive. With a 300 million-strong middle class and an economy set to grow at 8.5% this year, disposable incomes are rising quickly. Sales of cars and mobile phones are booming.
But even in wealthy neighbourhoods of big cities, Indian shoppers are accustomed to buying rice and soap from tiny neighbourhood shacks that lack freezers and well-stocked shelves but often sell on credit and deliver at home for free.
Real estate consultant Knight Frank said in a report this week that organised retail in India would grow to around 11% of the industry total by 2013 from 6% now.
Organised retail is growing at an estimated 20% a year in India, which has also lured rivals such as Germany’s Metro and Carrefour of France, which this week said it will soon open its first cash-and-carry outlet in the country and unveil a local franchise partner.
Wal-Mart is legendary for driving down costs, which keeps prices low but also crowds smaller operators out of business, making it a magnet for criticism even in its home market.
Its model has not thrived everywhere. In 2006 it pulled out of Germany and South Korea amid stiff competition and poor performance.
Jain said Wal-Mart is stepping up direct sourcing in India, where it now procures 35-40% of produce directly from farmers, and is tapping regional suppliers such as dairy cooperatives to increase efficiencies in a fragmented market.
”The supply chain is one of the big challenges: maintaining quality, ensuring commitments are kept,” Jain said.
Wal-Mart recently opened its second wholesale outlet in Chandigarh, and will open its next wholesale centres in Rajasthan, Madhya Pradesh and Hyderabad, he said.