Right off the bat, let me thank SupplyChainToday’s Facebook page for posting the video that eventually led to this blog post. The video is an interview of the President of Wal-Mart’s India operations. The reason I felt strongly about this video is because several sectors including retail have reached a flat growth curve. Looking ahead, the developing world is the area retail companies are going to expand. Like the massive green initiative that Wal-Mart recently announced, it has been one of the first American retail companies to have set foot in the developing world too. And it has been forced to do this very differently. India, like a lot of developing countries is heavily regulated in the retail sector. Wal-Mart is taking an interesting approach in India by acting as a wholesaler/distributor to the millions of retailers.
Here are two key discussions from the interview. I’ve embedded the whole video at the end of the post. It runs to about 14 minutes and I think its time well spent.
Question: Wal-Mart in India is not really in the retail business. Can you explain why this is so?
Answer: In India, retailing is a protected sector and the government currently does not allow any multinational company to operate in retailing. That’s why we don’t have retailing in India. What we propose to have in India is a wholesaler cash-n-carry business which is only permitted for business members. We’re also partnering with Bharti Retail who’ll run and own stores. But we do provide them with merchandise and marketing expertise.
Question: How would this business to business model work?
Answer: Essentially India is a nation of retailers. India has 12 million kirana stores (mom n pop stores). This is per capita (despite the size of India) the highest in the world. These stores buy from wholesale markets and direct manufacturers. The distribution chains operated by big companies like Unilever serve close to 1 million of the 12 million kirana stores directly. So a majority of these stores have to go to wholesale markets to buy products. It is a low-cost operation but it is also very inefficient. Especially in the area of fresh produce, meat, etc., it is very archaic. So how this model works is you have a selling point where you directly source product from manufacturers and sell these products to kirana stores at great prices.
The interview goes on to talk about other aspects of the business and how government regulations and legislations affect the way they do business in India. I find this model very interesting because Wal-Mart is taking its expertise – that is logistics and distribution and creating a business model to reach economies that they normally wouldn’t have been able to enter. This also ensures that Wal-Mart is able to continually grow its business in other parts of the world. This move also benefits India as they would be getting the supply chain expertise of one of the most evolved and efficient supply chains in the world. Two facts from this interview that I think will interest a lot of you are
- There is no organized supply chain in India. There is not much forecasting and retailing runs on a largely push based system.
- Almost 40% of all fresh produce in India gets wasted between the time it is produced and the time it reaches the customer.
Also, it is to be seen how soon Wal-Mart is able to integrate their Indian suppliers into their sustainability watch. The green initiative is going to direct the future of Wal-Mart’s interaction with their suppliers. It’ll be interesting to see how they approach this in the developing world where governments are not very carbon friendly as yet. Watch the rest of the interview and let me know what you think.