A lot of American Companies may have got ‘Bangalored’, but one US Company can more than manage to give it backto India is Wal-Mart. Recent deal between the ‘behemoth of Bentonville (Arkansas)’ and Indian telecom major Bhartimay just give it the elbow to enter the fastest growing market of the world. And it is making a lot of people nervous.
Ahmedabad, and indeed the whole of India, is gripped by an unprecedented retail mania. Both cultivable land at the countryside and housing colonies bang in the middle of blustling metropolises are being purchased lock, stock and two brimming barrels. But no news has been bigger than the recent signing of accord between India’s Bharti Group and the world’s biggest retail chain, Wal-Mart.
The deal is said to combine Bharti’s understanding of India, its reach within the higher echelons of the Delhi durbar and an existing database of consumers with Wal-Mart’s unparalleled business model of buying big and selling for cheaper to the biggest chunk of markets, anywhere that it goes.
Before we get down to what it means to us, let’s throw a little light on the behemoth of Bentonville.
It doesn’t get bigger than this:
Wal-Mart Stores, Inc. was founded by Sam Walton in 1962. It is the largest retailer in the world, and the second largest corporation (behind Exxon Mobil). Wal-Mart reported net income of $11.2 billion on $316 billion of sales revenue. It is the largest private employer in the United States and Mexico; largest grocery retailer in the United States, with an estimated 20 percent of the retail grocery and consumables business, and the largest toy seller in the United States, with an estimated 45 percent of the retail toy business! Eat that, competition.
Internationally, Wal-Mart operates in Mexico as Walmex, in the United Kingdom as ASDA and in Japan as The Seiyu Co., Ltd. Also, wholly owned operations are located in Argentina, Brazil, Canada, Puerto Rico, and the United Kingdom. Wal-Mart’s international operations account for approximately twenty percent of its total sales.
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Do these help form a picture for you?
- Wal-mart customers place low prices and value as the most important reason for shopping at Wal-Mart.
- Wal-Mart customers are sensitive to higher utility costs and gas (petrol / diesel) prices
- In the US, Wal-Mart customer’s average incomes are below the national average.
- More than one-fifth of Wal-Mart’s US customers have no bank accounts, twice the national rate.
- Wal-Mart stores, as the company, has yet to significantly penetrate Major urban areas in US.
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There’s one for everyone:
Wal-Mart Stores Division U.S. is Wal-Mart’s largest business subsidiary, accounting for 67.2% of fiscal 2006 net sales. This segment consists of three traditional retail formats: discount stores, Super Centers, and neighborhood markets, all of which are located in the United States, as well as Wal-Mart’s online retailer, walmart.com.
Wal-Mart Stores operates retail department stores selling a range of non-grocery products, though emphasis is now focused on the Super centers, which include more grocery items.
In the US, there are 1092 Discount Stores, 2,195 Super-centers & 110 Neighborhood Markets.
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Duur Ka Jhatka Paas Mein Laga?
Did the Bharti-Wal-Mart deal cause the recent development of Reliance Industries finalising the buying of Adani Retail, the Ahmedabad-based retail arm of the Rs. 13,500 crore Adani Group?
While the two happenings may seem disjoint, especially since Adani retail is a profitable venture – with the topline of around Rs. 200 crore – of the Adanis, industry sources suggest that the fact of the matter is that retail does not form the core business of the Adani Group and hence it made sense for the group to exit the business while the market is doing well. With Reliance scouting acquisitions with a vengeance, Adanis could also demand, and get, a significant premium over the actual valuation. With 54 stores in different formats, and successful ones at that, Adani has reasons strong enough to negotiate from a position of respectable strength too, irrespective of the size of the Mega suitor.
But what gave birth to the speculations about the proposed deal was the timing of it – just about the time of the signing of the Bharti-Wal-Mart deal. Reliance may not lose too much sleep about the existing competition, but the Bharti-Wal-Mart behemoth would be a tough cookie even for India’s biggest private sector company. And hence the urgency towards preparing a robust ground. Probably.
Or maybe not. But Bharti-Wal-Mart is menacing enough to cause similar upheavals in Ahmedabad / India.
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Battleground Ahmedabad:
The city is acknowledged by many in the industry as the best ‘research laboratory’ for retail operations in India! Once you crack the ultra-price-sensitive Ahmedabad market, things only get easier in other parts of the nation.
Consequently, there is no doubt whatsoever that Ahmedabad would figure prominently in Bharti-Wal-Mart scheme of things, even at the planning stage.
Presently, the Future Group (Big Bazaar, Pantaloon etc), Star Bazaar (TATA), Adani and Pyramid are a few of the major names fighting out in the Ahmedabad market. Reliance is soon going to open its account at SG Highway, after winning the battle in court against Shoppers Stop for huge space at the upcoming ISKON mall. Giving them company in ample measure are Subhiksha and new Super Value Store chain by HLL, which is trying to safeguard its bottom-line by empowering the neighbourhood kirana stores. In fact, that effort by HLL is the single biggest, if not the only, life-support-kit for the neighbourhood stores. The question is, will even HLL’s support be enough to fight the onslaught of an all-out war between the Future Group, Reliance and Bharti-Wal-Mart? Well, the jury is still out. Whatever may be the outcome, we hope not too many people lose their livelihoods.
Challenges for Ahmedabad:
When planning new store locations, Wal-Mart often faces many concerns from the affected communities. Local critics that oppose new Wal-Mart store openings cite concerns such as traffic problems, environment problems, public safety, absentee land-lordism, bad public relations, low wages and benefits, and predatory pricing.
Can Ahmedabad take any more traffic / parking burden? Wouldn’t the natural greenery – of whatever magnitude – of the countryside get trampled under the war for square foots? Can Ahmedabad afford to have any more jobless, aimless and hence dangerous slum population that has been pushed out of business by the retail biggies?
These are certain questions that only time can tell. Not all of the concerns may actually translate in to reality anytime in the next year or two. But, as instances across the globe have showed, when biggies fight, a lot social churning takes place too. Add to that the fragile caste and religion dynamics of the society, and you can imagine the upheaval that it might cause.
But it’s only a competition between a couple of big business houses, right?
Yes, it’s only about competition for market share between companies whose combined wealth can feed a couple of small countries of the world for years! And at that scale, anything goes. Environment, land acquisition and resources utilisation may hit the headlines for all the wrong reasons. For, unlike IT, retailing by these companies would involve farmers, transporters, service industry professionals and of course consumers.
And any activity that involves most sections of a society has the ability to affect most others too. Many cities have found that out the hard way.
And now the good news:
When companies like Bharti-Wal-Mart and Reliance set up their shop in your city, you can expect anyone from your grandmother to your dog to get employment in some form – either directly or indirectly. Hence, Ahmedabad can really look forward to creation of hundreds, if not thousands, of jobs because of the retail war.
Buying of commodities might become not just comfortable, but a lot cheaper. Overall work ethic of the city might improve because of the replication of the ‘customer first’ model of retail giants. And with products from across the world being promised to be stacked, the quality of life would get enhanced too.
All in all, if the negatives are kept under check – which well might be, what with Bharti being the operator here – getting Wal-Marted might not be such a bad thing to happen. Which city doesn’t want more jobs, more choices, less prices – all under one roof?
But hey, it might just be too early to even speculate about things to come. In any case, Reliance is going to enter the market first – with or without Adani retail in its dish. A few months with it, and we’ll get a picture of how things would pan out from there on. For the moment, wait with bated breath for the retail war of the century.
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Near 200-ft ring road, Ahmedabad?
If Bharti and Wal-Mart replicate the formats that the latter have been so successful with over the years, we might see a lot of activity around the 200-ft ring road and other peripheries of the city. Simply because the average size of a Wal-Mart discount store is about 102,000 square feet, while that of the supercenter is 261,000 square feet. The smallest format, the neighbourhood store takes an average of 42,000 square feet. With the Future Group and Reliance too fighting for the same formats, there might not be enough space for Bharti-Wal-Mart within city, by the time it arrives in around Aug. 2007.
With players like Tesco (UK) getting itchy to get into fray – possibly with a tie-up with the TATAs, land within city would be hard to come by. Also, with the SG Highway – Gandhinagar belt promising to become the IT corridor of Gujarat, townships by Sahara and Adani apart from a host of other activities in and around the 200-ft ring road, the place may become the showcase place for all the majors – with scaled-down versions of the same mushrooming in the rest of the city.
What it would also do is add to the mushrooming of schools like DPS / Calorx, edutainment centers like Science City and upscale residential colonies around the place, which in turn would give further reason for the retail majors to scale up their presence in the area.
The big question then would be the issue of development of the area by authorities. Would it become a showcase like the Bandra-Kurla corridor of Mumbai or would it be another Bopal of our own city? Would people who flock every new and major retail centers from all parts of the city (and neighbouring towns) bring just revenue or would gift the area with never-ending traffic snarls (what with it also being the highway)? Would the locality love the cousins of Sam Walton or would they rather have their kirana store back?
