Chaitali Chakravarty & Sagar Malviya, The Economic Times
Mumbai/New Delhi, 29 April 2016
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.”
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)