Well though their is no denying facts that FDI in Retail will benefit everyone, but if tomorrow Wal-Mart comes into Indian direct retailing, will it succeed?
Let us not forget that Wal-Mart is already in India in JV with Bharti in Cash and Carry business (wholesale). The present Joint Venture is into wholesale business where-in they sell only in wholesale mostly to other small retailers. Success of the same in reality has been mediocre. In-spite of starting its 1st store back in 2009. it has so far opened only 7 stores all over India.
Before understanding that success of Wal-Mart will remain limited in India, let us try and understand the business model of Wal-Mart.
1) Out of City Limits
Everywhere in the world including US, all Wal-Mart stores are located at-least 10 kms away from city center. The area of this stores is approx. 51,000 to 250,000 sq. feet. Most of them on an average 1.5 lakh sq feet. Considering that such sizes are not feasible in city centers they are located away from city. Where it is cheaper to set up shops. Since most Americans own cars, they go out and purchase the same on an weekend and get themselves supplies for every month.
Well considering that, in India, most of cities have sky rocket real estate prices, the only place where Walmart can set up such large scale formats is out of city center. The way it is doing in wholesale JV with Bharti. But a very small percent of Indians own car, thereby reducing down a huge percent of buyers who would like to flock to this huge discount retail shops. A recent visit by one of reporters to Walmart Bharti in Punjab revealed that though the retail buyer liked the pricing of wholesale shop, they found it too far off from the city and worth the extra efforts every week. There by when they setup deep discount shops targeting at retail consumers, will they be able to travel long distance?
2) Everything under one roof:
The idea of Walmart is to have everything under one roof, from farm’s produce to do-it-yourself kits for plumbing or even a refrigerator. The model is "jo dikhta hai woh bikta hai". So when a person comes to buy one thing he ends up buying more.
But in India when was that you went up buying everything at one stroke? Does an average Indian buys grocery and other stuff at the same time?
3) Personal touch:
The most critical reasons for Indians to buy from a specific "kirana" store is the personal touch. The owner of the Kirana store generally knows every customer and has a personal touch with the customer. At the same time the owner of the kirana store goes a step ahead to please the customer. Though Walmart has its own way of customer service, it cannot beat the personal touch of the Indian marwaris who sell at the local "kirana stores".
4) Home delivery And Credit:
The biggest advantage of the Kirana Store is the provision of home delivery of all the goods that you order a day before. And you generally enjoy a good credit period with the "kirana" store with out interest. Most of the times the credit enjoyed by customers range from 1- 2 months and sometimes even as high as 3-4 months. Additionally, this credit is completely interest free. Whereas in bigger stores you have to pay up front or via credit card. Where interest rates can be as high as 3% per month on Credit cards after service tax.
Considering the same when one has to travel a distance and make a purchase in large quantity then it surely need a deep pocket, which only higher middle class or the well salaried class in India has.
5) Idea of buying a month’s Supply:
The whole idea behind Walmart business model is to buy the goods which one may require over a period of month and buy it in wholesale, without needing to go to kirana stores. But one must also remember that Americans and westerns use lot of canned food, thereby having a mental capacity to buy vegetable or even meat, store it for a period of time and then consume it.
As oppose to that Indians mostly avoid eating anything which is stale for more than 2 days. And also are the one who are not comfortable with eating from canned food.
Well though there is scope for Walmart in India to succeed, but its overall success will remains mediocre. Would love to hear your views on this
[This guest post is written by Samruddha Salvi, a financial advisor and sub broker with Edelweiss. An entrepreneur at heart and writes regularly at his blog www.reformistindia.in, you can also follow him @samrudha on twitter]