After Bharti, Walmart in no hurry to get into retailing; cash-and-carry stores remain winning formula


October 10, 2013

Rasul Bailay, The Economic Times
New Delhi, October 10, 2013

Wal-Mart Stores, after its break-up with Bharti Enterprises, does not have any immediate plan to get into retailing in the country, making India the only market where the world’s largest retailer will limit itself to the wholesale space. Why?

Walmart officials in India say the company has found a winning formula in the Best Price Modern Wholesale chain. They even say that the Bentonville, Arkansas-based giant is so bullish on the format that it plans to export the formula to other emerging countries in Africa and Asia.

Analysts say focusing on the 20 Best Price cash-and-carry stores is the best option for the US giant as the business has proved lucrative and finding partners for retail entry will take time.

“The current regulations mean Walmart would need an Indian partner to set up retail operations and, keeping in mind their discussions with other major Indian players, that would take a while. So, going ahead with the 20 stores they have for the cash-and-carry model seems to be the most logical thing to do,” Devangshu Dutta, chief executive at retail consultancy firm Third Eyesight, said.

“This will help them attain a critical mass in India in setting up a retail business, if they wish to, in future. It will also help them achieve a comfort level in working in the Indian environment,” he said.

Walmart got into wholesale business in India by default, because that was the only space foreign retailers were allowed to operate in when it entered the country. India allowed FDI in multi-brand retail space only last year.

But, thanks to several tough riders, big supermarket chains such as Walmart and Carrefour have yet to enter the space despite the government making the norms easier since.

The cash-and-carry business, in comparison, comes without any restriction on foreign investment, and offers huge growth potential. Industry officials estimate it will be a $22-billion (about Rs 1,36,000 crore) business in India by 2017 and the market leader can eye revenues of about $5 billion (about Rs 31,000 crore) then.

Sam Walton, the founder of Walmart, launched Sam’s Club wholesale chain 30 yeas ago. Today, there are 700 membership-based Sam’s Club. In the US, they can sell to all bulk customers, including consumers.

However, regulations in India do not permit cash-and-carry to sell products directly to consumers and such venture must restrict business to retailers and businesses.

Yet, the business has proved highly lucrative with thousands of mom-and-pop storeowners in the country finding cashand-carry outlets more convenient than local wholesale markets.

Reliance Retail is also bullish in this space and plans to roll out dozens of wholesale outlets. Also, by going solo, Walmart can ensure it complies with anti-bribery norms of the US government.

Bharti Walmart has not opened any store for a year and dismissed some officials because of an internal probe to check if the India unit has violated the US Foreign Corrupt Practices Act, which prohibits American firms from bribing government officials in foreign countries.

In a joint statement announcing the break-up on Wednesday, Walmart Asia head Scott Price said, “We will continue to make important social and environment contributions to India, seeking conditions that will boost retail FDI in India.”