Finding a central place to locate its warehouses!
Like any retailer, understanding the mind of the consumer is obviously going to be a challenge for Walmart as it prepares for its second coming in India—the first is its current cash-and-carry business with Bharti Enterprises—now that FDI in retail has been allowed. After all, as Bharti Walmart’s MD & CEO Raj Jain points out, customer tastes change every 100 km or so, making a US-style approach near impossible in a market like India. Indeed, with customers not willing to waste too much time shopping, Jain says he needs to locate his stores within 2-3 km of customers. And, in a big departure from the traditional Walmart big-box model, Jain says his stores are likely to vary from 10,000 square feet to 60,000 square feet. And given that even such large spaces are not easy to find, especially in places like Delhi, don’t be surprised if there’s some relaxation here as well.
Even more than this, however, will be the challenges posed by the restrictions placed by the government to safeguard the kiranas and, it would appear, bigger organised sector retail players in India. Unlike in the case of single-brand retail where the government has relaxed the 30% local sourcing condition from small-scale manufacturers, there has been no change for multi-brand retailers. So, 30% of the value of goods sold has to be sourced locally, which is not a problem. But since the definition of small has been put as someone with less than $1 million in plant and machinery, effectively this means that if a supplier invests in upgradation as part of becoming a part of the Walmart supply chain, he could soon not be small-scale any more. In other words, a Walmart has to grow its suppliers to get them up the quality chain, but not too much!
Even this is not the biggest challenge—that will be deciding on where to locate warehouses to service shops. See the map of India and, apart from J&K, the next go-area is Rajasthan, Haryana and Delhi; after this, there are huge swathes of no-go areas until you come to Maharashtra and Andhra Pradesh; and then nothing as you move eastwards till you reach Assam and Manipur. It gets even more complicated after this. The biggest market in all these states is Maharashtra, but within this, a Walmart can get to just three cities—Mumbai, Pune and Nagpur. Apart from the obvious distinct nature of consumer markets, there’s the huge distance between them. Theoretically, Walmart can have a relationship with Bharti’s Easyday stores which can sell anywhere they like—so Walmart can set up a warehouse near Mumbai and supply its low-cost goods to its Mumbai stores as well as to Easyday ones in the markets near Mumbai. Problem is, apart from being a messy solution—and unfair since rivals like Reliance Retail have no such restrictions—this means extra taxes will have to be paid when Walmart sells to Easyday and is therefore effectively ruled out. That, though, is Walmart’s problem and the fact that the company is still planning to set up shop suggests it finds the market attractive enough. For those crying themselves hoarse over how kiranas will get slaughtered, it’s worth keeping in mind that only a tiny fraction of the Indian retail market is open to a Walmart or a Carrefour.