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April 29, 2016
Chaitali Chakravarty & Sagar Malviya, The Economic Times
Mumbai/New Delhi, 29 April 2016
Walmart,
the world’s largest retailer, is interested in selling food products
directly to Indian consumers both by setting up brick-and-mortar as
well as online stores, but it will take a final decision after
evaluating the policy guidelines that will be notified by the
government, said the head of its India unit.
“The business of
brick-and-mortar food retail stores and online sale of food products is
of interest to us, but we have to evaluate the policy guidelines once
they are notified,” Walmart India Chief Executive Krish Iyer told ET in
an exclusive interaction.
The government announced its
intention to allow 100% foreign direct investment (FDI) in ‘marketing
of food products manufactured and produced in India’ in the recent
Budget. The final rules will have to be approved by the Union Cabinet
before they are notified. “Never in the Budget has the government taken
so much interest in retail, and it is encouraging. 100% FDI in food
marketing is a progressive step,” Iyer said.
“100% FDI in food
marketing will provide better realisation to farmers and bring down
prices of essential commodities,” said the India head of Walmart, which
so far does not sell directly to consumers in India. It operates 21
cash-and-carry stores, with small retailers and businesses being its
main customers. The retailer plans to open another 50 such outlets in
the next three years.
The company sources its own brands —
Members Mark and Right Buy — from within the country, something that
sits well with the ‘Make in India’ initiative.
“Private label
will be a huge differentiator in terms of bringing store footfalls.
They are being made in India and benefit customers in terms of lower
prices and better quality,” Iyer said, adding private labels will have
an important role to play in food retail.
In-house brands
account for 20-30% of sales and nearly half the profits of most
retailers. With 60% of this coming from food alone, several Indian
retailers are now present in more than a dozen food and packaged
commodity product segments.
The Department of Industrial Policy
& Promotion has moved a Cabinet note and industry officials believe
that final rules will be approved in 4-8 weeks. They are hoping that
besides brick-and-mortar stores, the government will allow online
retailing of food products and will also expand the definition of food
to include grocery.
Iyer, who joined the Indian unit of the
world’s largest retailer two years ago, said food items along with home
and personal care products would make the model more viable. Walmart
had entered India a decade ago in a 50:50 cash-and-carry joint venture
with the Bharti Group. This foray was seen as a first step by the US
retailer towards eventually opening its own stores to sell directly to
consumers, once government policy was suitably amended.
But the
move to open up the retail sector to foreign investments got mired in
political controversy. While the United Progressive Alliance regime
eventually allowed 51% FDI in the sector, Bharatiya Janata Party has so
far been opposed to allowing foreigners to open multi-brand retail
stores in the country.
“Retail
is a local business and it won’t work without local leadership or by
following global templates. But given Walmart’s history, they would
want to enter retailing alone as it will give them confidence on the
expansion strategy as well as proper control,” said Devangshu Dutta,
chief executive at retail consultancy Third Eyesight. “Even if FDI is
allowed completely, the caveats or riders will mostly support local
business.”
Morgan
Stanley expects the country’s food and grocery segment to become the
fastest-growing category, expanding at a compounded annual rate of 141%
by 2020 and contributing $15 billion, or 12.5%, of overall retail sales.
While
most retailers get 55-60% of their sales from food and staples, general
merchandise, personal and home products make up a bulk of their profit
pool with net margins as high as 10-15% compared with food, which
fetches 3-5%.
“Walmart can bring volume to Indian food
retailing but they have to tweak their global model here. There is a
huge gap between high-end food supermarkets and local food retailers
which Walmart can bridge,” said Ruchi Sally, director at retail
consultancy Elargir.
(Published in The Economic Times)
