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| It happens only in India |
| Suveen K Sinha / New Delhi Aug 16, 2010, 00:58 IST |
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Chastened by its India experience, Walmart develops a unique model for the country
Walmart, the world’s largest retailer, whose supply chain is fabled for its efficiency, awards marks out of 100 to all suppliers. A combination of management methods and software tells the suppliers how much they need to deliver and when. Consignments which arrive on time and conform to specifications get full marks. In other countries, most suppliers get about 95. The Indian suppliers, however, average 60.
“It’s a big problem,” sighs Raj Jain, the head of Walmart in India as well as of Bharti Walmart, a partnership with Sunil Mittal’s Bharti group, who manages to look surprisingly calm at all times. The poor performance of suppliers has forced Walmart to keep “significantly more” inventory in India than anywhere else in the world. That eats into operational efficiency.
Forget foreign direct investment (FDI)! While the country’s restrictive FDI regime is a sore point with all multinational retailers including Walmart, the US giant has discovered many others in the 15 months since its first wholesale store became operational in Amritsar. This learning is influencing the way it does business here and creating a unique business model for India.
The country’s FDI policy ensures a multi-brand chain like Walmart does only wholesale trade here — selling to retailers, restaurateurs and caterers, who in turn sell to individuals. The company’s Best Price stores have customers who are registered with it as members on the basis of any of the 18-odd government documents that certify them as retailers. The minimum value of a transaction has to be '500.
This minimum value is unusual for Walmart, which sells anything from pins and needles onwards. Here, if a customer wants a shampoo sachet, he must buy hundreds of them in a pack. But that is the least of the issues. The customers expect free credit, which the company does not provide. That is the reason why one of its boldest experiments is facing an uncertain future.
When the Amritsar store opened, Jain obtained licences for 10 pushcarts from the municipality. Green grocers would pick up stuff from the Best Price store every morning and fan out into the city. Walmart is not sure the pushcarts can roll for much longer. “The pushcarts are not doing very well. They (the green grocers) find it difficult to come all the way to buy from us. Many times they need credit. We are not able to provide that,” says Jain. The vendors, typically low-net-worth individuals, find it easier to do business with the local wholesaler, from whom they have been doing business for generations and getting free credit.
Perhaps because of this credit factor cropping up every now and then, Best Price stores now offer two weeks’ free credit through a system of credit cards issued by Kotak Mahindra Bank. Besides, Walmart has succumbed to the quintessential Indian expectation of the Indian consumer. It is only in India that the company delivers goods to the buyer’s doorstep.
The company has also realised that India is so big and diverse that it will take a long time to get a critical mass across the country. The fact that each state presents a new revenue zone does not make the job easier. Walmart is therefore looking at a region-specific model. Its third store opened on August 4 in Jullundhur. The second was in Zeerakhpur. All three are in Punjab. What’s more, nearly all the suppliers are in Punjab. “Restricting to a geographical area is good. You can get critical mass in some states, not the entire country. That will take long,” says Jain.
INDIA ANGLE
# Inventory levels are kept high because suppliers are less reliable
# Goods are delivered to the buyer’s doorstep
# Regional focus: All suppliers in the same state as the stores
# Collaborative farming, on verbal commitments
# Free credit to buyers through credit cards |
Next, Walmart goes to Rajasthan and Madhya Pradesh, where the same locally self-sufficient model may be replicated.
However, you cannot forget FDI for long. The fact that Walmart cannot sell directly to individuals limits its scale. For example, the company does what Jain calls collaborative farming, in which all commitments with farmers are verbal. “We tell the farmers that if they have a problem we will help them. It works well. Farmers want to sell us much more, but we are not able to buy much for lack of scale,” says Jain. Walmart works with some 110 farmers in India. And that becomes a sore point when Jain attends international conferences. “We work with 300,000 farmers in China. People do not understand what we are doing in India. It is embarrassing,” he says.
Nevertheless, Walmart has an ever rising optimism. When it started, it planned to open 12 to 15 stores in five years. “Now we think that many will happen next year, which is within two years,” says Jain. His hopes are pinned, in part, on the new goods and services tax (GST) the government plans to introduce next year. “Inter-state movement is a big problem as it duplicates the structure in each state. GST will be good,” says Jain.
And then, of course, there is FDI. “If FDI in multi-brand is allowed after 10 years, it may be a bit of an issue. But if it happens in the next 12 months, there will not be a problem,” says Jain.
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