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Why Walmart may fail in India?

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.

walmart-india

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]

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21 comments

  1. The aouthor has made valid points. Take common consumable items in India- vegetables, milk and meat. Most Indians prefer buying vegetables locally every day or maybe every other day. Our fridges cannot be relied upon, because of power failures which are so common. It is much more practical to have the servant maid go to the corner vegetable shop and get fresh vegetables. Regarding milk, most Indians do not buy tetrapack milk, but each metro region has cooperative unions and people get milk mainly from them. Again, milk booths are situated in all localities, and generally those who stand in queues are the servants. No one will be willing to drive 10 km to get a week’s supply of milk. If there is no power for a few hours, the milk will go waste, since it doesn’t keep well in the hot Indian climate. Same with meat. Many Indians are averse to frozen meat (they have a different texture from fresh meat). They prefer getting it from local shops. And again, because of power cuts, no one wants to stock up a week’s supply of meat. Also, making a trip to Walmart will require a lot of planning, including checking the inventory in the kitchen to see what items will run out soon, etc. In the US, this has to be done since you cannot just take a 2 min. walk to the corner store to buy salt etc. In India, you can buy items that you run out of, since Indian residential areas are peppered with kirana shops, and it doesn’t take much time to buy items as you run out of them. Now consider the other extreme, such as electronic goods. If someone wants to buy a TV, he will shop around, getting the best deal from local dealers. The latter will also be willing to oblige, even if it means cutting down on the margins. At Walmart, I am not sure if the prices will be negotiable. The other important factor, as the author had pointed out is, the petroo/diesel cost in driving to and fro 10 km needs to be taken into account. It may run in excess of Rs. 100. So unless a purchase is Rs. 2000 or more, it does not make financial sense, apart from wasted time. Now, how often will the average middle class Indian make purchases of Rs. 2000 or more at any time (that does not include perishables like vegetables, milk, etc.)? I think that Walmart will only offer a serious competition to Big Bazaar. I think kirana shops will be only marginally affected.

  2. Wallmart will definitely pose a serious competetion in the retail sector, and if they succeed they will end up changing the common mans perception towards retail market. As with the rise of the domestic retail chains, we can see that already happening in metros. So, as the base is set they wouldn’t even have to try that hard to succeed. People will go with the convenience and eventually get over the age old concept of fresh buying and bargaining every morning. Location is no challenge here. We usually go upto great limits to get little bargain price even today.

  3. I think the question is not “Why FDI?” rather the question should “Why FDI now?”. India does not need an FDI reform now , its just an eye wash to help secure MMS’s image and increase the “investor” sentiment. Rather India desperately needs reform at agriculture sector, improving its supply chain, storage infrastructure, distribution channels. Sure walmart will offer these, but in due time, it will cannibalize and monopolize this and then it will dictate. Thats how it works. Question would be where to get the money to build this – because MMS says “money does not grow on trees”- sure it doesn’t, money grows underground (COAL), money grows in thin air (2G) , money grows in deep space (ISRO Devas). Money will not grow in trees unless there is a environment scam or a tree scam.. really anything is possible in MMS regime

  4. dear sir There is very high minds in the world but some hv dreams n some r complete their dreams as of today u know in india there is 120 crores population n neighbouring conutry’ approx 80 crores the total poplutaion i think 200 crores if u think for 200 crores population we can provide one business that should be everyone trying to visit n must see them u know there was a appu ghar in new delhi (the capital of india) that will be in high profit n daily approx 100000 people visit there but our government require that space for international trade fair that’s why appu ghar given in private sector it is now every state small n big appu ghar my project is only 7 or 8 nos in the world it means 7-8 country’s hv that project but not in india n there neighbouring country’s that’s why i m in assurance that every one visit this show we can make a stadium in rural area with the capacity of 25000-40000 people sit for one hour show n daily 8-10 shows if we will get one tkt inr.500/- it means u can calculate what we can get if we will pay maximum 50% expenses then the profit u can calculate that’s why i m saying approx. 100000% or more we can earn the total cost of this project is not more than 5 million usd. i hv nothing n i m very simple man in new delhi india if u r interested then pls gv ur geneuinity terms n experience i do not know any thing but i hv dream that this can be done in india pls reply at e4arliest tks j k gupta

  5. not need a wal mart india,because of india has so many number of small and middle level of shop keepers.so if wal mart will come india means,so many millions of shop keepers would affected and also create un employability,.india should THINK WALMART OR INDIANS.. JAI HIND…………

  6. There are many websites that are coming up in India to sell products. The product range too varies from site to site. For online grocery shopping, try mygrahak.com. This full online grocery store has items just as any other physical grocery store. Most importantly, you can pay cash-on-delivery, thus you don't need to part away with your money till you get the product. E-commerce is the next big thing in India and no wonder companies are trying out different products to sell online. What’s interesting is that they all are doing well. Divya Bhaskar MyGrahak.com

  7. if we look out high middleclass people walmart can be a big success as the thinking of people are changing and they are accepting the big retail outlets, whereas if we see low middle class people they still go to moms and pop shops and buy more of credit material.

    • Deepak Sachan

      The biggest point against Wal-Mart is that it is an unethical company. Its entry shud be strngly opposed

  8. I feel it might succeed. the reasons are 1. Indians always look 4 lower prices. no one can provide better than them 2. they can squeeze suppliers better than anyone else 3. They can outsell most in market by selling at a loss 4. They will have covert and overt support of high n mighty in india

  9. wholesale indian spices

    Now it becomes a great problem for the retailer shop that how they will survive . As BigBazar , city super bazar, etc are now opening their branch in every area. I think very soon something is going to be happen….lets see whats happening…your this site fabulous…wholesale indian spices

  10. The only point that would work against Walmart is "Out of City Limits". These days there is no personal touch in India Retail shops. Also, home delivery and on credit theory doesn't work. And most of the India households have always been buying a month's supply – only vegetables and fruits are bought fresh.

  11. while it might be about walmart.. i m fully against…..coz one may also see the dark side of this …. small shopkeepers will get affected…. they will be unemployed… as u kw the population of india… suicide will be commited more …. is there anyone who would like to see this situation of india?? we are killing our own ppl…and letting foreigners to kill us and make us their servants again…:(

  12. VeerChand Bothra

    Out of city location will be a challenge definitely. And point number five is also important. Food make of Indians is different from West and fresh vegetables are preferred over 'baasi' food. I am sure Big Bazaar has learnt about such things and Walmart will do well to learn from them.

  13. Besides Walmart sucess in Wholesale segment is already just mediocre, you can google it..

  14. Business Line India

    I think Wal-Mart will be very competitive with the Future Group. As people run after discounts, here we need to see what are the best deal Wal-Mart can offer in India. Secondly it also depends on other Indian Brands like Big Bazaar that what will they offer to beat Wal-Mart’s offer. People still goto local Kirana to buy groceries items everything depends on the offer.

  15. I agree with Stocktips intraday. However after reading the interesting points brought out by the author, I would like to put forward my views point by point. Please note that this is just for debate only no arguments please. Even before going into points, I would like to say that India is not on moon. We are in the same world where most developing countries and third world countries are living. Walmart already has first hand info about how to deal with local cultures, customs, mindsets etc. They might have failed, then struggled then succeeded in many other countries. They will do the same in India too. Only those who think that “Walmart is a decoit and govt has allowed a decoit to enter india and loot its citizens” will freeze with fear. Ordinary people will go out to see what Walmart is all about and if they like they will buy. When they come back they tell their neighbors that they shopped at Walmart and its not that bad. The next guy will go and slowly it becomes normal. History will repeat itself. When first KFC was opened, I remember what happened. Now KFC is normal. Now coming to points : 1) Out of city : Nowadays people are travelling outside city to Dhabas for evening out. The same people will venture into Walmart. By the way Walmart will not only have provisions. They will have restaurants coming nearby, may be theaters coming nearby. Those who do not own a car will have so many taxiwallas and who knows even city busses will ply there soon. Also 1.5 lakh sft in total land is not so huge that it is unimaginable. It is just more than 3 acres. 2) All under one roof : People need not buy all at one go. When they shop at any mall, they will window shop 90% and buy 10% but they will know that so and so item is available in walmart at so and so price. When people go to buy refrigirator, they will compare prices and if cheap, go 15 km to walmart to buy it there. 3) Personal touch of Kirana will beat Walmart : I think it is a wishful thinking. Even now if you observe out of the retail sector of 400+ billion market, organized retail garners only 6%. It means 94% market is with Kirana. With multimational retail, the percentage will go a little lower from 94 to lets say 85%. This is becasue Kirana is spread in every nook and corner of India while organised retail is only in cities and towns. But people still shop at both kirana and branded retail. Same will happen with Walmart. No big diff. 4) Home delivery : People will see economics and decide. If you shop at kirana for 1000 bucks and he delivers the stuff home free and if you shop at Walmart the same stuff at 900 bucks and spend 100 for transport, people will go for Walmart becasue of the whole experiance of travelling, window shopping, wide spaced goods, nicely dressed sales girls, use of credit cards will make the Walmart overshadow kirana. 5) Even Indians are getting used to “Processed food” which the author terms canned food. In fact for the betterment of India we should avoid wastage of food. The statistics say that almost 30% of grains, 40% of fruits and 50% of vegitables are wasted due to lack of proper handling, storage, processing. Govt is encouraging more food processing industries. If Kirana does not want to sell processed food (which I doubt) organized retail will. My view on Kirana is that I dont understand their demands. They are opposed to Forign retailers. Few yesrs back they were as much against domestic organized retailers. Indirectly what they are saying is that govt should “RESERVE” selling of provisions to a particular mafia. They dont want any one except them to sell. Even you and me (forget forigners). Why? They want to have the privilage of selling to consumers only to themselves in unorganized way. The so many links from farmer to Kirana is nothing but looting. If farmer gets 10 rupees for his produce and consumer is paying 100 rupees, where is that money going? A labor is putting up his physical labor to earn money. The so many links between farmer and consumer (including kirana) are simply sitting in cash counter and taking their cut. Why this privilage be “RESERVED”? With organized retail (whetehr its multinational or domestic) the links in between will reduce and the benifit will pass on to both farmer and consumers. Also by demanding that the privilage of selling be reserved to them, they are robbing consumers of their choice of choosing where they buy. They are demanding me that I buy only from them. They are demanding the govt that it take precautions so that no one is allowed to seel to me other than him at his price at his quality at his time. Bottom line : I welcome compitition in any field which brings to India, a new technology, experiance, benifit. Just my two paisa :)

    • Actually not, retail is an oversold story. Most of the big brand retails in India are surviving on crowds inspite of being in city centers and malls. The Big bazaar has an average take off of 35 Rs per feet towards rent in Mumbai, in-spite of that their margins are way too low. Well your views are worth it, but a simple glimpse on future group’s retail division gives us an idea on why Retail is over sold.. nd the deep discounts by this stores are on the products which are packed. http://www.moneycontrol.com/financials/pantaloonretail/profit-loss/PR03

  16. Stocks Tips Intraday

    I think Indian consumers mindset has taken a great shift. In present scenario, it is difficult to say that WALMART will fail as WALMART is a huge brand and has great marketing strategy and we all know that everything depends on marketing and branding.

  17. People are fear of one thing that's Rule of the wallmart spreads all over India. Take an example of cool drinks; While introducing pepsi or coke, its starting cost price is 3 rs.. On that time small level cool drinks producers are all gets affected and Now the cost of the same is 25rs. Here come the vast difference. Similarly now wall mart is going to give u cheapest price but it affects our future generation too.

  18. Makarand Golatkar

    By looking at Big Bazaar success I think mind set of people changing. Indians are very money savy people they like to save 50paise as well so if any one giving them cheap they will travel across.Kalyan Metro mall Only Big bazaar is crowded & running other than any shop.Only thing is people who buy on credit will stay away from such shops.

    • You are right abt the Kalyan mall, but the survival of big bazaar is on crowd in India. And the crowd only helps them break even, if you look at P&L of Big bazaar its totally flat.. with not much scope for increase in margins..

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