Wal-Mart, which operates as a wholesaler in India, on Friday announced its plans to add 50 stores to its network of 20 outlets over the next four-five years, shrugging off a growing clamour against FDI in multi-brand retail.
The announcement comes a day after BJP’s manifesto, where the party formally announced its opposition to FDI in multi-brand retail, which allows chains with foreign equity to sell directly to consumers. In addition, it is the US retail giant’s first strategy statement after it parted ways with Bharti Group a few months ago and also saw a staff exodus at the top level.
Wal-Mart was one of the several global chains looking to enter India and the tie-up with Bharti for wholesale cash-and-carry was seen as the first step of a bigger alliance once the policy uncertainty reduced. Separately, Wal-Mart faced several investigations by Indian authorities into lobbying practices although it has not faced any charges of wrong doing.
The world’s largest retailer also announced plans of starting an e-commerce platform for its buyers, including restaurants, canteens and kirana stores, through its Best Price Modern Wholesale stores.
“Wal-Mart is committed to India and we are excited about our growth plans. We will continue to focus on the cash-and-carry format as we are very happy with the way it has shaped up in the last few years… Along with our growth, we are taking a number of important steps to strengthen compliance so that we do the right thing everyday. We are evaluating and reinforcing procedures and programmes relating to all compliance areas, including licensing and permits, food safety, and responsible sourcing among others,” Walmart Asia president & CEO Scott Price said in a statement on Tuesday.
While the government allowed 51% FDI in multi-brand retail more than a year ago, so far only Tesco has got a green light from the government for a joint venture with the Tata group, while the others such as Walmart and Carrefour are awaiting consensus among political parties. Despite the Congress-led coalition backing the FDI policy for multi-brand retail, a majority of states do not permit global multi-brand retail chains.
Analysts said it makes good business sense to focus on the wholesale business. “It shows that Wal-Mart has understood that the cash-and-carry format is a very lucrative model to follow in India since it’s not only devoid of FDI restrictions but many other restrictions as well. As you go deeper into smaller towns, you will find that wholesale markets are not very well developed. Small traders have to travel to bigger cities to shop for their businesses. That’s where Wal-Mart will come in. Each of these outlets has a potential to do business worth Rs 50-100 crore per year. This means, just through these 50 stores alone, Wal-Mart is looking at revenues of Rs 5,000 crore per year,” said Arvind Singhal, chairman of retail consultancy, Technopak.
“Cash and carry was always a very profitable business. As the days go by, we will see more foreign retailers opening shop in this segment. And, as far as FDI in multi-brand retail is concerned where modern retail is just 6-7% of the overall retail market, it’s very early days and people are overreacting. I am sure, a few years down the line, paradigms will change and retailers and the government alike will figure out a mutually profitable way of doing business,” says another expert.