Friday, July 4, 2008

Bharti Walmart Tie up...

(From the article published in “Marketing Mastermind”, written by Doris Rajakumari John, Team Leader, ICFAI research centre)
About Wal-Mart: (Annexure 1)
1) Largest retailer in the world – net income for $11.2 Bn on sales of $316 bn for FY 2005-06
2) Operates in more than 13 countries & serves more than 176 million customers through more than 6100 stores.
3) Established in 1962 by SamWalton.
4) Customer oriented focus – “Sundown rule” & “ten feet rule”.
5) Everyday low price the USP of wal-mart.
6) Excellent SCM – pioneered the use of barcodes & RFID in retailing.
7) Wal-mart entered different countries through various routes like acquisition, JV, partnerships etc depending on market conditions & the expertise level in working in such market.
8) Wal-mart procures more than $2bn worth of goods from India and more than $18bn from china.

Retail scene in India:A detail report will be mailed on request (, subject line: “Akshat’s retail blog: request for report on Indian Retail Industry”
1) Huge potential – total retail industry size of more than $350 Bn.
2) Increasing Organized retailing share in the market
3) Market dominated by unorganized sector
4) Favorable demographics, rising income level (DINK’s) & changing mindsets of Indian consumers – giving boost to consumerism
5) FDI was allowed between 1990 – 96 but due to protest from small retailers it was again restricted in 1997.
6) According to new regulations – “foreign retailers could set up wholly-owned subsidiaries in India for the purpose of trade, but they could only sell to wholesale buyers (ie to domestic retailers) and not to end customers. By definition, the rules described a wholesale buyer as the one who held a sales tax registration number. 100% FDI was thus permitted only in franchissee and/or cash-and-carry wholesale operations”
7) In 2006, the govt announced no. of reform in FDI policy. 51% FDI was allowed in retail trade of “single brand” products

The Deal with Bharti:
1) JV announced on Nov. 27th, 2006.
2) JV will manage procurement, inventories and logistics, while stores would be set up under franchise agreement with wal-mart.
3) The deal size was not disclosed but experts say it amounts to initial investment of $100mn by two firms each and increasing it to $1.46bn
4) The JV will help wal-mart to localize. Wal-mart has to pull back from Germany & south korea mainly because it was unable to cope up with localizations.
5) Areas of synergy (exhibit II)

1) Competition: (Detail report on completion available on request: (, subject line: “Akshat’s retail blog: request for report on Indian Retail Industry”)
2) Talent sourcing & retention – According to RAI, while the total requirement for the fron end alone is about 1.25 million, the employee base in organized sector is 1 mn. The requirement is expected to go up to 3.25mn by 2008-09.
3) Poor infrastructure – cold chaisn, warehousing & logistics a big bottleneck
4) High & rising real estate prices – as pwer PwC, the current avg lease rentals across some of the top cities range from Rs 88 per sq ft to as high as Rs 120 per sq ft a month. On an avg, lease rentals take up 7-8% of the revenue and constitute 40-45% of the non-material cost for retailers.
5) Another key challenge will be to decide the kind of format to be used in a particular region.
6) Large no. of intermediaries & loss during transportation, the current wastage level of perishable items is as high as 40%.
7) Image of wal-mart is a problem – stifling policies with suppliers, forcing them to operate on very thin margins. The strategy seems to be like – “buyer wins, customer wins and somebody has to loose”
8) Approach to farm produce procurement – “the seed to shelf approach”
9) Managing diversity of Indian consumer (more than 6000 castes and sub-castes in 28 statees, and every community has its own nuances) – walmart faced huge challenge of localization in Germany, SouthKorea & South America (exhibit IV)

The key success factors in Indian retail industry will be customer loyalty apart from other factors such as location, value-added services, price, and the ability to read shifting trends (forecasting & analytics). How the retailers position themselves and how they are perceived will also be crucial factors for success. The evolution of the Indian retail scene continues to pose challenges to the various market players and it remains to be seen how each of them will grapple with them and who will emerge a winner….my guess is that Bharti-wal-mart will be a great success story creating lot of value for Indian consumers and for the suppliers as well though in short run they may face some problems!!.

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