The US retailer has turned soft on its initial aggressive plans for India. Are infrastructure bottlenecks and a far-from-ideal FDI policy in retail thwarting its growth ambition?
The contretemps come at a time when the company should have been chalking up its next big move on the retail front. But embroiled as it is now in the unseemly allegations, what is baffling is that Raj Jain, the head honcho of its India unit continues to maintain a stony silence despite the pile of adverse publicity washing over the company. Company sources inform that Jain has been travelling due to personal commitments but it belies logic that at a time when the company is facing a crisis, its CEO can afford to remain incommunicado. For the time being, in the absence of Jain, Wal-Mart Asia head Scott Price is holding the fort in India. But many industry observers are intrigued by the absence of Jain. Repeated attempts made by this magazine to speak to Jain on this story did not succeed. His interview, running alongside this story, was done before the current crisis erupted.
Industry analysts that B&E spoke to, who did not want to be quoted on the current challenges facing the company because of the sensitivity of the matter, neverthelsess opined that the ongoing investigations could slow down Bharti-Walmart’s planned rollout of its cash-and-carry stores and push back its plans to enter multi-brand retail. According to analysts, a foreign retailer would need to invest a minimum of $100 million, of which 50% must be on back-end infrastructure within a period of three years of the commencement of the overall investment. “It is too early for us to share any clarity or details on our retail plans since FDI is opened only in nine states. We are studying the policy and will come out with our plans”, Jain had said to the media, some days after the FDI policy on multi-brand retail was announced. But even after three months since the announcement of the new FDI policy in retail, Wal-Mart has not come up with any concrete plans on how it intends to move forward on multi-brand retail.
One reason for the wariness in declaring its expansion plans could be the country’s abysmal lack of back-end infrastructure in retail, which is largely owing to the country’s creaky transportation network. As a result, products and especially farm produce take much longer to travel from farm to consumer than it should. Trucks carrying cargo in India travel an average of 250 to 300 kilometers a day, compared to twice that in the developed world, according to a McKinsey report, and that is unlikely to change just because foreign investors such as Wal-Mart want to set up shop in the country. Building infrastructure and other tasks traditionally done by the government – from building roads to devising a feasible agriculture policy – is a pretty tall order for a retail chain, even one as resourceful as Wal-Mart.
Arvind Mediratta, the COO of Bharti-Walmart, is candid about the challenges his company is up against. “As we open up stores in different states, there is a lot of complexity coming in. One issue is the Agriculture Produce Market Committee Act, wherein you require a licence for every municipality you operate in. For instance, when you operate five stores in Punjab, you require five different licences. Second, the cold chain infrastructure in the country is woefully inadequate.” So despite the excitement to grow its business in India, Wal-Mart appears circumspect of riding out the challenges posed by the country’s inadequate infrastructure.
India’s high cost of real estate also poses a big challenge for the low-price retailer. Wal-Mart is well-known for its hypermarkets spread over 100,000 to 200,000 sq. ft, but finding that kind of space, that too at a reasonable price, in big Indian cities will prove to be a wild goose chase. The longer it holds back on its expansion plans in India, the higher would be the cost it will have to pony up for funding its growth in the country. .
The contretemps come at a time when the company should have been chalking up its next big move on the retail front. But embroiled as it is now in the unseemly allegations, what is baffling is that Raj Jain, the head honcho of its India unit continues to maintain a stony silence despite the pile of adverse publicity washing over the company. Company sources inform that Jain has been travelling due to personal commitments but it belies logic that at a time when the company is facing a crisis, its CEO can afford to remain incommunicado. For the time being, in the absence of Jain, Wal-Mart Asia head Scott Price is holding the fort in India. But many industry observers are intrigued by the absence of Jain. Repeated attempts made by this magazine to speak to Jain on this story did not succeed. His interview, running alongside this story, was done before the current crisis erupted.
Industry analysts that B&E spoke to, who did not want to be quoted on the current challenges facing the company because of the sensitivity of the matter, neverthelsess opined that the ongoing investigations could slow down Bharti-Walmart’s planned rollout of its cash-and-carry stores and push back its plans to enter multi-brand retail. According to analysts, a foreign retailer would need to invest a minimum of $100 million, of which 50% must be on back-end infrastructure within a period of three years of the commencement of the overall investment. “It is too early for us to share any clarity or details on our retail plans since FDI is opened only in nine states. We are studying the policy and will come out with our plans”, Jain had said to the media, some days after the FDI policy on multi-brand retail was announced. But even after three months since the announcement of the new FDI policy in retail, Wal-Mart has not come up with any concrete plans on how it intends to move forward on multi-brand retail.
One reason for the wariness in declaring its expansion plans could be the country’s abysmal lack of back-end infrastructure in retail, which is largely owing to the country’s creaky transportation network. As a result, products and especially farm produce take much longer to travel from farm to consumer than it should. Trucks carrying cargo in India travel an average of 250 to 300 kilometers a day, compared to twice that in the developed world, according to a McKinsey report, and that is unlikely to change just because foreign investors such as Wal-Mart want to set up shop in the country. Building infrastructure and other tasks traditionally done by the government – from building roads to devising a feasible agriculture policy – is a pretty tall order for a retail chain, even one as resourceful as Wal-Mart.
Arvind Mediratta, the COO of Bharti-Walmart, is candid about the challenges his company is up against. “As we open up stores in different states, there is a lot of complexity coming in. One issue is the Agriculture Produce Market Committee Act, wherein you require a licence for every municipality you operate in. For instance, when you operate five stores in Punjab, you require five different licences. Second, the cold chain infrastructure in the country is woefully inadequate.” So despite the excitement to grow its business in India, Wal-Mart appears circumspect of riding out the challenges posed by the country’s inadequate infrastructure.
India’s high cost of real estate also poses a big challenge for the low-price retailer. Wal-Mart is well-known for its hypermarkets spread over 100,000 to 200,000 sq. ft, but finding that kind of space, that too at a reasonable price, in big Indian cities will prove to be a wild goose chase. The longer it holds back on its expansion plans in India, the higher would be the cost it will have to pony up for funding its growth in the country. .
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