Wal-Mart to open 10-12 cash & carry stores in India
Retail major Wal-Mart after its tie-up with Bharti has said that it is committed to India for a long time, said its India President Raj Jain in an interview to CNBC-TV18. He said that Wal-Mart recognises value of Bharti as its Indian partner.
Jain has chalked out a bullish expansion plan in India. He divulged that Wal-Mart is committed in setting up 10-12 Cash & Carry stores in the next 12-18 months. According to him, this will definitely help to generate employment for atleast 30,000-50,000 people in five years.
On allowing foreign direct investment in FDI, he commented that it will benefit both SMEs and farmers.
Below is a verbatim transcript of the interview. Also watch the video.
Q: Let me start by asking you about the discussion paper that s been put out by the Department Of Industrial Policy And Promotion. This is not the first time that we have actually seen a series of recommendations been spoken about by the government. We had the Indian Council for Research on International Economic Relations (ICRIER) report, which has been the government sponsored report.
We have had the economic survey, we have had the parliamentary committee standing report and now we have got the Department of Industrial Policy & Promotion (DIPP) putting this out. How encouraged or enthused are you that this time around we are possibly going to break the policy paralysis?
A: It s certainly a very exciting and significant development. We have been talking about opening retail as a country for several years now and there have been constituents on both sides. But it s for the first time that the government has come out with a real discussion paper, something which they made public and is willing to now have a public debate on the issue, which is very encouraging.
So that both those who feel that this is the right thing for our country, those who feel that may be there are some apprehensions we need to take into consideration as we move in this direction and need to come out with their views and we can openly talk about those.
Q: What are your thoughts on the fact that no quantum as far as the cap is concerned is mentioned in this discussion paper? What do you actually make of that is that a good sign or is that a negative sign?
A: It s a good sign. It shows the earnest of the government to have an open debate and they have not closed any windows of either 100%, which is what honestly our position would be and we have always said that, but they are open to from a 100% down to 26% whatever it comes out to be based on this debate. It just shows how transparent the government is about this whole issue and there are no caveats to the discussion at least.
Q: The government has now outlined about 12 issues that are likely to be the issues that they would like some sort of resolution or discussion on. Let me go point-by-point as far as these issues are concerned. The government says to ensure foreign investment makes a genuine contribution to the development of infrastructure and logistics, it should be stipulated that a percentage of the FDI, say about 50%, be spent towards building up of backend infrastructure, logistics or agro processing.
Do you think a condition or a rider like this makes sense to someone like you who is already in the cash and carry business and is hoping for this sector to open up to actually be able to get into multi brand retail in all earnestness?
A: Some kind of rider on backend investment is welcome because, honestly, no serious retailer can mean business and compete globally if they have not invested in the infrastructure at the backend. It s only in India in the initial years where people have feared about retailing being just a front-end play and we have seen several casualties as a result for those who did not invest in the backend.
Certainly, if FDI was to open a lot of foreign retailers will come into India and I am sure they will all invest in the backend. So any kind of rider on backend investment is welcome especially in a country like India where the infrastructure is so poor and therefore all retailers will invariably have to set up a backend to be able to service the front-end.
Q: If you can share with us details in terms of how much you actually had to invest in setting up backend infrastructure as part of the cash and carry operations at this point in time?
A: I wouldn t be able to give any numbers yet. All I can say is that cash and carry by its very nature is a very largely backend driven business because we are only allowed to sell to the small businesses and Kirana s etc consumers and so on and so forth.
I would say almost about 50 to 60% of what we invest goes in the backend and it s not only about the dollar or the rupee investment it goes into the backend. If you look at managerial time, if you look at the amount of technology which goes into the backend about the processes of upgrading small and medium manufacturers and so on that is enormous so a lot of effort actually goes into the backend vis- -vis the front-end.
Q: So you are saying that there should be a legislation that actually says that employment should be given to youth and not necessarily define it as urban or rural but you are welcome to the fact that there should be a legislation to generate employment and to make employment of a certain number mandatory for those who are investing in this sector?
A: Employment to the youth and employment to the underprivileged or even the urban poor if I may say or the underprivileged should be included in that because just rural-urban divide may not be so relevant and difficult to monitor. Also somewhere in the paper the government has talked about opening store only in towns above ten lakhs.
So to actually employ rural youth in stores which are opened in bigger cities is going to be very difficult because that is about migrating people from their habitat to urban centers, which may not be in the interest of the country itself.
Q: You've actually preempted my next question which is again of the proposals that the government is looking at and that is really this specific area that they have talked about, a population of 10 lakhs as per the 2001 census. Is that acceptable? Is that a rational proposal you think?
A: My own view is that is very limiting. There are only as per the census about 40 odd cities which are in that bracket of about 10 lakh population. And 40 cities spread over a large country like India, that will be too restrictive for any retailer to want to be able to setup stores. And specially when you mandate a backend investment of the magnitude which the government is thinking then regional strategies make more sense rather than national strategies for most retailers.
So setting up a backend in the north and then try to open stores in Calcutta, that would probably not be the right thing to do.
Q: So you are saying that this population limitation that they are actually talking about 10 lakh and around that number will actually limit or constrain your operations and your investment plans?
A: It surely will. My own view is that this should be a number at least or should be brought down to about 5 lakhs which opens us up to about 130 odd cities. But all the work we have done in this area suggests that any town or city in India above one lakh could very much do with modern retail.
And also the traditional retail in this country in all these cities which are about 6000 or so above one lakh, will benefit if we were to allow modern retail and foreign investment to be set up in those cities.
Q: Let me ask you another one of the issue they are currently debating at and that is the minimum percentage of manufactured products be actually sourced from the SME sector in India. You are already doing a lot of sourcing from the SME sector in India. So this shouldn t really be a big constraint as far as you are concerned, would that?
A: No I don t think so. Already 50% of all our suppliers are SME suppliers. We tried ourselves in developing small suppliers, regional suppliers and giving them national distribution and helping them develop their brands and products and giving them technology which they need.
So we really welcome this and this has always been one of those things that we have said only modern retail can do. If FDI in modern retail is allowed then SMEs in India will prosper and benefit and so would the farmers. And all that can go also towards developing some of these manufacturers to become global suppliers in the future.
Q: Just to make this a more convincing case for the government, could you at least share with us a ball park figure of the kind of sourcing that you actually do from the SME sector annually?
A: As I said, about 50% of our suppliers are currently SME sectors. If I look at what we sell in our stores I would say it would probably be a similar ratio of what we saw from SME. So about 50% of what we sell would be SME sourced and the balance 50% will be the large manufacturers at this stage.
Q: One of the other things that the government is trying with though, at least proposing is to setup a shopping mall regulation act or the regulator in that sense to actually ensure that these stipulations are complied with. Do you think that's practical and feasible? Do you think that will work?
A: Our view is that a central regulator like in the telecom industry is probably too ambitious for this industry. It s a different kind of industry. Stores and provisions stores are a local issue.
Just to give you an example even today almost 35 odd licenses are required to open a modern retail store anywhere in the country, most of which are given by the state government or actually by the Municipal corporation.
So I think once the broad guidelines are agreed and stipulated, the implementation should be at a state level and we also feel that the state should be asked to setup a single window clearance or a body to help do that who in turn can then entrust the municipality that however they want to run the state to manage this.
Doing it at a central level in terms of where stores should come and what they should sell and how they should source it would be a very difficult and bureaucratic job which I don t think the government would like to do or would want to do.
Q: One of the biggest concerns and apprehensions of allowing foreign direct investment into this space, is the impact on the mom and pop stores or the kirana stores, we have had this conversation several times over. In fact if I were to just compare it to China and the government is looking at those numbers, in China since 1992 when this sector was actually opened up the small outlets grew from 1.
9 million to 2.5 million. So they actually grew after foreign direct investment was allowed into this space. In your experience in other emerging markets, what has really happened to these mom and pop stores, to the kirana stores?
A: In our experience whether it is Mexico or Brazil or China or any other emerging country there has been a very marginal impact of any modern retail into the mom and pop stores.
Actually on the flip side the mom and pop stores have become more competitive and they have started providing a different set of services. This is even more true in a country like India where real estate relative to our economic prosperity is very expensive. The way our town planning works, it is almost impossible to open big box retail in any of the town centres.
So mom and pop stores will continue to play a very significant role. But by developing the backend infrastructure which the government is trying to do through this whole move, it will help them to become much more competitive because they can from cash and carry then source the same products at the same price which modern retail will have access to. And that is fantastic for the profitability and the growth of the mom and pop stores.
So even if you look at China 15 years after opening up of retail to the world, China still has only 20% penetration of modern retail in the country. So I don t think India is going to be any different. In fact if at all, India will probably be lower.
