Tuesday, January 08, 2013

Wholesale retail: For those with staying power

Of the four or five big players known for their prowess in wholesale retail, only Wal-Mart and Metro appear to be serious contenders for the game in India. The rest are yet nowhere near getting their strategies and plans sewn up. Why?

As growth flattens in the developed countries of America and Europe, retail giants are looking to India as the market that could help put some life into their limp balance sheets. With a $500 billion retail market growing at roughly 15%, of which hardly 10% is organised retail, a roughly $2 trillion economy, and with 1.2 billion potential consumers, India is no doubt a mouth-watering proposition. But then, India with its derelict infrastructure, a vast but ropy supply-distribution network extending into the hinterlands, which in some places can be as old as 200 years, can test the nerves of even the most doughty marketers determined. And with government policies skewed in favour of the traditional ‘kirana’ stores, the country, despite its big potential, often proves frustrating for global retail players wanting to spread their business wings in India.

But as everywhere, where there is a will, a way is always found. So despite being a tough market to crack, global retail biggies like Wal-Mart, Carrefour, Metro and Tesco, are all agog and breaking sweat to make a go of the business to business retail model in the Indian retail sector. A small tailwind working in their favour is that the government allows 100% foreign FDI in the wholesale retail space. Also, most players hope that FDI in multi-brand retail is likley to come sooner than latter in spite of the faux populism preached by most political parties in India.

The wholesale cash-and-carry domain is dominated by the American retailer Wal-Mart (with 17 stores), which has a 50:50 JV with its Indian partner Bharti, and German biggie Metro (with 10 stores). The second-largest retailer, French Carrefour, has only two stores so far in north India, and plans to open two more this year, in the northern Indian cities of Agra and Meerut. The UK-based supermarket giant Tesco has no immediate plans of setting up shop here, and is happy partnering with Tata Trent Group’s Star Bazar chain of operations. The only Indian player who can take on these overseas giants is Reliance, but it has just one store to show for on its wholesale retail scorecard.

Over the long term horizon, only Bharti Wal-Mart and Metro seem to have significant expansion plans. Both retailers aim to open 50 cash and carry stores across the metros, and tier 2, 3 towns of India. With a typical Metro store costing anything between Rs.60 to Rs.70 crore, that would entail an investment of roughly around Rs.35 billion from Metro. The group has already invested about $150 million so far in this market, and plans to invest roughly Rs.6 billion in opening 8-10 stores this fiscal. Says Rajeev Bakshi, MD of Metro Cash & Carry, “Our USP is that we have a long-term understanding of the India market, being the first one to set up shop in 2003. We are going to only focus on cash and carry format. And that doesn’t mean we are passive retailers.” Bakshi joined Metro from PepsiCo India, and is actively focusing on pro-actively using marketing to reach out to prospective consumers, and entering into long-term relationship with kirana stores.
 

Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
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