Walmart's Waterloo!

Walmart hit the headlines in Chennai, Tamil Nadu last week when the site under construction for its wholesale business 'Best Price Modern Wholesale' by an independent developer was sealed by the Chennai Metropolitan Development Authority (CMDA). The action was taken by CMDA following agitations by those who oppose FDI in retail - a section of traders and others belonging to some political parties. The reason cited for such a drastic step taken by CMDA was lack of permission for carrying out construction activities in the premises.

One wonders why Chennai's political parties have this 'kolaveri' - murderous rage - against any of Walmart's activities in the state, even though the proposed wholesale format is allowed by the Foreign Investment Promotion Board through the automatic route! The seal on the premises is said to be for want of permissions though, everyone knows that the rage is against Walmart! Metro Cash & Carry of Germany, the pioneering foreign wholesale format to enter India is present in more than 15 locations in India. It is worthy to note that Metro Cash & Carry is present with multiple number of stores in the states of Karnataka, Andhra Pradesh, Maharashtra among other Northern and Eastern states. However the company has carefully stayed away from Tamil Nadu till now, even after almost 10 years of the company's operations in India (the first store opened in Bangalore in 2003).

Rumor mills work overtime in Chennai with the news that the opposing parties are planning to engage a whole train exclusively to travel from Chennai to Delhi and back soon to voice their opposition to the Union Government  further vociferously. The issue has been politicized to assume alarming proportions now! One is urged to ask oneself the question of how these traders - if they are the real ones who agitate at all - have the time or the capability to sustain consequent business losses as they spare all their energies and time to participate in such activities tirelessly!

A wholesale format of Bharti Walmart means that the Best Price Modern Wholesale offers products and services to its member retailers at wholesale prices which render clear retail margins that are said to be more than what the wholesale markets and distributors offer. This benefits those small retailers who currently buy from unorganized and semi-organized wholesale markets and distributors of Fast Moving Consumer Goods (FMCG). These wholesale markets and distributors operate with a differential pricing strategy, charging more  for those who avail unsecured credit and charging less for those who pay cash for their purchases. Often credit customers may not be able to avail of FMCG company initiated quantity purchase schemes and they are usually offset by the wholesalers for the interest costs they would incur on credit supplies/sales. The B2B model of Bharti Walmart is a distributing wholesale format that comes with a mock-store in the premises for training small retailers on stocking, shelving, planograms, etc. Walmart has also enabled credit purchases via a tie-up with a bank to offer credit and the retailer can use the authorized credit card. It has a 3PL (3rd party logistics) arrangement which helps the small retailers to avail of door deliveries at less than the standard transportation costs.

The organized B2B wholesale model may soon become commonplace across India with even domestic retailers from India, getting into it. The format is being set up by a dynamic retailer in Tamil Nadu,  Shri Kannan Departmental Stores (www.shrikannan.com) with the first large wholesale format already established in Singanallur, Coimbatore in Tamil Nadu. The extended format of Big Bazaar, the Big Bazaar Wholesale Club offers customers bulk deals at wholesale prices operating in a membership model. The bulk of the wholesalers in the Indian towns yet deal with small retail buyers in an unorganized manner that often results in higher landed costs and the resultant squeezed margins. If small and medium retailers have to grow in India, a modernized wholesale set up could support it undoubtedly.

Small retailers can focus their energies to get cost advantages through alliances, collaborations and obtain the needed scale in purchasing power by forming retailer cooperatives. The Government can support small retailers by providing exclusive infrastructure support like building strip malls and organized municipal markets in small towns. The creation of special bazaars in Hyderabad by the State's tourism department to promote arts and handicrafts through a 'night bazaar' is a typical example of what a state government can do in terms of infrastructure support for small artisans, traders and retailers. In large cities the need of the hour is exclusive parking facilities to enable customers to walk the high streets peacefully when they shop!

Each State in India can have its own say with regard to allowing foreign retailers to operate and in that scenario it should prevail on the minds of those intending companies like Walmart to focus first on the favourable ones, which is a no-brainer. Why the heck does one have to invite trouble even with a wholesale format, when one has enough ground to cover and operate peacefully?

                                                                                                   - Dr. Gibson G. Vedamani

Percolating Starbucks!

The expansion of the retail market in India can be mapped in direct proportion to the expansion of its infrastructure – a town expands and proportionately its retail market too, into its new areas and markets. A small town like Tumkur in Karnataka had only one shopping area - the Mandipet main road market, until a few years ago. But soon came with the expansion of the town and its infrastructure, the new high streets like the SIT Main Road, SS Puram Main Road, that have now become the shopping haven for the Tumkur customers. The town of Tumkur is just one example and in the case of any Indian small to mid-sized town, as rapid infrastructure growth is registered during the current decade, shopping high streets have been emerging at a frenetic pace. These are tier three and tier two towns with population spanning from three to five lakhs and from over five to ten lakhs respectively. The real estate market has been witnessing a distinctly higher percentage of growth than that of the economic growth rate of the country. A larger supply of retail space is also projected by analysts due to an expected increase in the Floor Space Index in towns and smaller towns are expected to have a good supply of quality real estate spaces at affordable prices. Therefore one expects retail to grow by a good measure that is by double digits, in tier two and tier three towns this year (2013). That said, the growth of modern retailing in cities is on a different pitch. It has been estimated by industry experts that in larger cities like Bangalore, Delhi and Mumbai retailers may continue to ‘actively lease space in superior quality malls due to the limited availability of new space and the low vacancy rates in existing prime malls’. 

While seriously growth-seeking retailers and new retailers may aim to grow in affordable smaller towns, those that come with great investments – like the Starbucks kind – may continue to look for establishing presence in key established markets at higher occupancy costs. As I was hunting for a small retail space for a proposed new retail venture recently, I came across an interesting landlord who had a 300 square feet space in a prime location in Seven Bungalows and he said that he was keen to have Starbucks as his tenant! When I asked him whether he would come down on the quoted lease rental of Rs.500 per square foot per month, pat came the reply that he might consider a considerable discount. Therefore, many landlords may be willing to forge a joint venture with reputed brands being ready to settle for a percentage of the topline without even demanding a minimum guaranteed return every month on their leased premises. The situation seems to be hunky dory for big brands seeking to enter the country. The homegrown big brands do not seem to have such good luck! We are yet to see a Shoppers Stop open in the SOBO (South Bombay) region! This trend shows that the reputed retailers entering India may fill even the limited vacancies that may emanate in established malls in big cities. There may not be a huge threat to small retailers in small and mid-sized towns as the big guys from abroad may not immediately rush into these markets as they might take time to establish in big cities first. Strategically while domestic retailers may seek to grow outside cities, debuting foreign retailers of say, categories such as food and apparel, may logically look within the big cities first!

It may be a rat race and a race for the survival of the fittest, as domestic retailers may keep moving fast outside cities into the smaller and smaller towns while foreign retailers who may seek to spread their wings into these markets closely following their heels.  But the foreign retailers may have to become Indian completely. The question of expansion feasibility of Starbucks into smaller towns to give a tough fight for Café Coffee Day that has already achieved scale of expansion in India having established in many small towns, may be answered within just the next two to three years and both the brands may compete on a level playing ground soon! After all they say that Starbucks in India has indigenized itself completely with its entire foodstuff sourced from Taj Stats and the coffee beans from Tata’s very own estates in India though the brand identities may only remain Starbucks!

- Dr. Gibson G. Vedamani