Wal-mart's smart move towards India

Wal-Mart the $340 billion retail giant is looking forward at its long time partner P&G to learn the tricks of the Indian market as the company is set to get a foothold in India. Wal-Mart's fabled "efficiencies of scale" and modern distribution methods would be a breath of fresh air in India. So the deal with Wal-Mart is obviously going to lead to an inflow of management and technical know how, which will be extremely beneficial across the Indian economy as and when the practices to be introduced spread. It uses its strength to drive down costs internally and gets hard bargains from suppliers; to live up to its promise of keeping prices low everyday, becoming a formidable inflation-buster. While the joint venture will focus on B2B business, the Bharati group plans to launch small format retail stores shortly.

The Wal-Mart first cash and carry format retail store is expected to open by 2009. This will allow large buyers setting quality standards and demanding new products and would also prompt farmers to form co-operatives or work as employees of agribusinesses . It will also provide small retailers and business owners a wide range of quality products at competitive wholesale prices that will help them enhance their businesses and profitability. Right from SKU’s to product design, packaging and distribution, P&G is collaborating with retailers with the insight in point of sales data for supply chain, merchandising and category performance inside the store. However in India, the bazaar is an institution, a way of life. And, in the view of a growing number of people in India, it is endangered by Wal-Mart. There are 12 million people working in retail in India and all their jobs will be at stake with the advent of Wal-Mart in India. It would cause large scale displacement of small retailers and squeezing of domestic manufacturers and farmers. Expansion of the Wal-Mart chains has caused massive closure of small stores and pauperization of poor communities even in the United States. In the context of huge unemployment existing within the country, such employment displacing FDI is the last thing that the Indian economy needs at the moment.

Shop till you drop . . .

Modern retail formats have mushroomed in the metros and mini-metros, and over the last few years have also begun to establish a presence in the next rung of cities, exposing shoppers to varied shopping and entertainment options, all under one roof. Consumers are now seeking the convenience of one-stop shopping, speedy and efficient processing, for best utilization of time. Shopping needs are influenced by factors like family situation, disposable income, time pressure, the attitude towards shopping and the personality of the shopper. It is also said that all consumption activities involve the stimulation of thoughts and/or senses. Cognitive consumption is related to rational thinking and behavior to utilitarian values. Sensory consumption is associated with the intangible benefits that pertain to the emotive and experiential aspects of experience.

Retailers are aware of the importance of the consumer's store choice process. They realize that consumers can buy the same or similar merchandise in any number of outlets. Thus, they undertake a number of activities to attract and keep consumers coming back to their stores. Many retailers, however, are not as aware of the broader "shopping mode choices" of consumers. Retailers consider the store as a way to differentiate themselves and manufacturers see the point-of-sales as a platform for brand activation. However shopper behaviour turns out to be complex and unpredictable, which makes it a tough challenge to effectively address the shopper in-store. Thus, a unique retail outlet image can be one of a retailer’s most valuable marketing assets and is a strategic component in retail marketing.

Entry Routes of Foreign Players in Indian Market

In 1997, it was decided that FDI would not be allowed for mere trading since it will lead to outflow of foreign exchange , drive out the domestic unorganized retailers from business and increase unemployment. Although FDI is not allowed in retailing , many international players are operating in India if they set up domestic manufacturing facilities or source the product locally or enter into the market with franchising arrangements. India has been a hotbed for test marketing by global MNC’s with biggies like Nokia, entering India through that route. Foreign Investment Promotion Board allows foreign companies to test market their products for two years by the end of which they are required to set up their manufacturing facilities. The primary purpose certainly is risk mitigation-especially for new products or new variants before investment.

Another route through which large international retailers such as Germany’s Metro Cash and Carry and Shoprite Checkers of South Africa has entered the Indian market. Wholesale cash and carry operations are trading outlets where goods are sold at wholesale rates for retailing and business purposes. While there is protest at one end , different state government departments such as Punjab Agro-Industries corporation has signed a memorandum of understanding with the Metro Cash & Carry International for sourcing of food products for its international operations. It will bring in the required efficiencies in the supply chain for distribution of food within the country and also provide access to world markets. They have also made substantial investment in training up Indian farmers, fisherman etc. in the state of art technology. Over 90 per cent of the products sold are sourced locally even as each wholesale centre helps create, on an average, 300 direct jobs and another 150 indirect jobs. Although wholesale cash and carry is meant for purchase but there needs to be greater clarity in this definition and non-transparent policy as bulk trading does not clearly states the minimum quantity requirements.

Lets discuss more on these entry routes in the comments of the post.

"Once upon a time .." The Tale of Retail ...

Retailing consists of the sale of goods or merchandise from a fixed location, such as a department store or kiosk, or by post, in small or individual lots for direct consumption by the purchaser. Retailing may include subordinated services, such as delivery. Purchasers may be individuals or businesses. In commerce, a retailer buys goods or products in large quantities from manufacturers or importers, either directly or through a wholesaler, and then sells smaller quantities to the end-user. Retail establishments are often called shops or stores. Retailers are at the end of the supply chain. Manufacturing marketers see the process of retailing as a necessary part of their overall distribution strategy.

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