Reliance and Bharti-Wal-Mart can learn a lesson from ITC

By Vipin Agnihotri

No one is going to argue with the fact that India is on the threshold of a retail revolution. In my opinion, in few portions India has already traversed some way down that path. But there are some portions, such as allowing foreign direct investment in the retail sector that India needs some more work. Agri-retailing in India also need a lot of work.

According to experts, the business model of agri-retailing consists of sourcing farm produce directly from farmers and then selling them to end-consumers. The best part about this model is that it get rid of the middlemen from the value chain, which in turn gives both farmers and end consumers better prices. In addition, it also gives retailer a substantial margin.

But it has been noticed that middlemen have substantial political clout. Seeing their profits disappearing, these middlemen have now struck back. Not so long ago, political “mobocracy” has derailed Reliance Retail’s push into Uttar Pradesh and West Bengal.

And that is where India Inc. can take a lesson or two from the ITC. It is worthwhile pointing that the cigarettes-to-hotels-to-paper-to-FMCG major is also present in the retail segment, through its Choupal Fresh initiative. Unlike Reliance and Bharti-Wal-Mart, ITC is doing quite a good business and that too without any sort of protest.

The main reason why ITC is not facing any protest is because of the fact that they have developed a big rural constituency by working with small and marginal farmers and tribals by investing in afforestation, watershed management, livestock development and rural health and education programmes. Point to be noted here is that ITC has implemented all this not as part of a corporate social responsibility programme, but as a pivotal part of its business plan.

Some may argue that ITC gets a lower commission on their purchase of farm produce, but the fact of the matter is that business model ensures that they continue to earn money round the year. India Inc. will do well to emulate the ITC model.

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FieldFresh: Vital component in the Bharti diversification

By Vipin Agnihotri

While the Bharti group is mostly in the media at present for its Wal-Mart tie up and its stand on spectrum allocation in telecom, few realize that FieldFresh, which is a relatively obscure Bharti venture, could prove to be a vital component in the group’s diversification.

It is worth mentioning in this regard that Bharti FieldFresh has announced plans to get a turnover of Rs 5 billion by 2010. Generally speaking, FieldFresh is a 50:50 partnership venture between Sunil Mittal’s Bharti Enterprises and Del Monte Pacific India Limited started its corporate journey in 2004.

To get an edge over its rivals and global competition, the company has established the biggest agricultural R&D facility of its kind in more than 300 acres of land. According to sources, company also plans to engage farmers across India for contract farming.

In my opinion, FieldFresh expecting 30 per cent of revenues from exports needs to also focus on the domestic market. In the domestic market, ITC remains a major hurdle for them. ITC’s first mover advantage happens to be a major challenge for FieldFresh.

Indications are that FieldFresh aptly plans to move into food processing, which is still in its nascent stage. As the Bharti-Wal-Mart tie up is going slow and placing its focus more on cash and carry at this moment of time, investments into food processing in India would surely augur well for its retail foray and could in fact prove to be a cash cow in future too.

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WalMart in India: An Exclusive First Look

Today a reliable source has given me the first look at the first Bharti-Walmart store in India. The source informed me that the under construction building is next to the Globus mega-mall is the first Walmart. Due to the sensitive issues we and others have discussed with Reliance Fresh, it makes sense Walmart wants to remain low profile as they enter India. Below we have a satellite image of the location of the first Walmart in India:

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It’s located next to Globus Stores Pvt Limited, on the corner of Hill Road & Waterfield Road (also known as RK Patkar), Bandra (W), Mumbai, Maharashtra, India

Below we have exclusive first look pictures of the store. Notice the store is going to look much different than Walmart’s in other countries. Due to the location, it appears Walmart is going for an urban style store with many floors. In fact, according to the Bharti Group Chairman, "… for small and mid-sized retail stores it has to be in city. Very large ones can be outside city.”

Pictures of Walmart India (click to enlarge)

First Walmart India Mumbai Click here to enlarge The Store is behind the Globus Mega-Mall in this picture

First Walmart India Mumbai 2 Click here to enlarge

First Walmart India Mumbai 3 Click here

Walmart India Mumbai Picture 4

Picture Source: Alan R.

Background on Walmart in India

The Bharti-WalMart launch is going to be low key ad without much fanfare due to the aforementioned issues with retail in India. According to Bharti-Walmart the lunch will happen in phases over time and "We will not go for a national launch. It would be in phases similar to our telecom business model," Bharti Group chairman and managing director Sunil Bharti Mittal said.

The Bharti Group has claimed they will invest $2.5b by 2015 in the retail sector while entering into a 50/50 joint venture with Walmart for the cash and carry business. "Bharti will be in the frontline and Wal-Mart in cash and carry," Mittal said, adding that this model is likely to remain till the government eases FDI norms in retail. In the cash and carry business, a company operates like a bulk dealer on behalf of several manufacturers and sells the merchandise to retail traders (quote source dnaindia.com).

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Retail: Next big thing in India

By Vipin Agnihotri

Lucknow, India: There is no doubt that retail is the next big thing in India as retail shops are doing a brilliant business at present. Lots of Indians believe that the retail shops are a good idea as they provide goods at a discount. After all, why pay more when you get it for less at the retail shops?

Now the Mega Corporation Reliance too has come into the fray of retail market. A chain of convenience stores with the name of ‘Reliance Fresh’ is now spread across the NCR area with an estimated investment of Rs 8,000 crore ahead of Bharati- Wal Mart. It is worth mentioning in this regard that this tie up has thrown up a big and one of the world’s most attractive retail markets with a population of over one billion.

Apart from groceries, fresh fruits and vegetables along with medicines are also available in the shops with a discount that attracts lots of people to these stores. Interestingly, the entry of the big players in the retail business has also brought in its wake considerable controversy.

But despite that, advocates of chain stores are adamant that their entry will not only change the economy and lifestyle of the Indian consumers but also that of the farmers. For example, the stagnation in the earnings of the Punjab farmers would be a matter of the past. Reliance ‘farm to fork’ project will handsomely contribute to the increased incomes, as the farmers will be getting fair share of the price.

“Indian consumers are smart and they are all price conscious and they want to finish the work as fast as they can. They do not go to a provision store for fun. The retail shops are helping the consumers save more and in some way it is capable of supporting the middle class of India,” pointed out Dr Suvrokamal Dutta, renowned financial expert.

Statistic wise: India’s retail sector is wearing new clothes and with a three year compounded annual growth rate of 46.46 per cent, one can safely say that Retail is the fastest growing sector in the Indian economy. Experts believe that traditional Indian markets are making way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. What’s more, western style malls have started making their presence felt in metros and second rung cities alike, giving Indian consumer an unparalleled shopping experience.

According to Prashant Jha, correspondent of local business daily, India’s big middle class and its almost untapped retail industry are pivotal attractions for global retail giants interested in entering newer markets. While organized retail in India is only two per cent of the total US $215 billion retail industry, there are some reports, which are depicting that it will grow at the rate of 25 per cent annually, driven by changing lifestyles, strong income growth and most importantly favourable demographic patterns.

By 2010, organized retailing in India will cross the US $21.5 billion mark from the current size of US $7.5 billion. This is quite different to the situation ten year ago when there was not one shopping mall in India. At the present juncture, in Delhi, Mumbai and their suburbs, there are about 700 malls. Organized retailing in small towns in India is growing at an impressive 50-60 per cent annually compared to 35-40 per cent in the bigger cities.