Monday, December 5, 2011
In Jalandhar, a sample of what Wal-Mart brings to the table
Wal-Mart does not disclose its revenue in India; it had 4,000 employees in the country as of August. The Jalandhar store looks and feels like Wal-Mart’s American outlets.
For multinational merchants like Wal-Mart, it seemed to be the long-awaited opportunity to jump into India with both feet. But on Monday that moment appeared to be delayed once again.
Late last month, as part of a push to modernize his nation’s notoriously inefficient retail economy, Prime Minister Manmohan Singh announced that for the first time big foreign companies like Wal-Mart and the British company Tesco could open retail stores in India.
Until now, foreign companies have been restricted to serving only as wholesalers in India. That has already helped create more modern distribution networks, often while generating better prices for farmers and other producers, and giving customers better deals, too.
But expanding the foreign presence to retailing has been seen as the necessary next step for modernists like Mr. Singh, who has been urging the move for years. Praise for his announcement came from India’s corporations and some of its 175 million farmers, who see the move as part of a wave of changes that might help jolt a slowing economy.
And opponents — representing the 34 million people who work in retail and wholesale businesses, as well as left-leaning politicians — were just as loud.
On Monday, leaders of two opposition parties said Mr. Singh’s finance minister, Pranab Mukherjee, had agreed to a delay. Mr. Mukherjee is expected to make a statement in Parliament on Wednesday.
All of this places Wal-Mart in a position hardly new to the company: at the center of a raging debate that pits the multinational giant from Bentonville, Ark., against local mom-and-pop businesses.
For more than a year, Wal-Mart has been operating a wholesale outlet in this northern city known for its fertile farms and hearty food. Local businessmen like Ravi Mahajan, whose family has had a wholesale general store in the narrow alleys of the Imam Nasir market for 40 years, say their sales have been cut in half as their customers — retail shopkeepers — stock up at Wal-Mart.
If the government eventually lets foreign firms expand beyond wholesaling to open retail stores, Mr. Mahajan said, many of his retail customers would be forced out of business, while squeezing out traders like himself who have long served as the crucial middleman in Indian commerce.
“We’ll be destroyed,” Mr. Mahajan said last week, minutes after he and dozens of other traders burned an effigy with a bloated belly and a crudely drawn face, meant to represent multinational marauders.
But Indian business is far from united in opposing foreign retailers.
Farmers like Avtar Singh Sidhu, who sells potatoes to PepsiCo for its Lays chips and has sold baby corn and other vegetables to Wal-Mart’s local partner, the Indian conglomerate Bharti, argues that foreign retailers will be a boon to India’s struggling agricultural sector. The multinationals, he said, will buy directly from farmers and pay better prices than local wholesalers.
Already, he said, PepsiCo is offering 6 rupees per kilo (or 11 cents) for his potatoes, while local traders offer only 3 rupees (6 cents). “We need more competition,” Mr. Sidhu said.
Policy makers are looking for ways to stimulate economic growth, which fell to an annual pace of 6.9 percent in the three months that ended in September. It was the first time India’s growth rate had fallen below 7 percent in two years.
The announcement by Mr. Singh’s administration on Nov. 24 called for allowing foreign companies like Wal-Mart to team up with Indian partners to open retail stores in metropolitan areas with more than one million people. Jalandhar has 2.1 million people.
The plan ran counter to the views of many politicians who say a slower approach is needed to protect indigenous firms and the rural poor.
But Mr. Singh and his backers have argued that foreign retailers could help reduce chronically high food inflation — which has run around 10 percent for the last year, on top of 20 percent increases the year before. The retail proposal, proponents say, could improve the lot of the more than a half billion Indians still tied to the land, by improving the supply system from farms to consumers. An estimated one-third of some types of vegetables and fruits rot before ever reaching retail shelves.
Speaking of the Nov. 24 announcement, an adviser to Mr. Singh, Raghuram Rajan, an economist at the University of Chicago, said, “This is a bold move, and I think this is a necessary move.”
At present, barely 6 percent of India’s $470 billion in retail sales takes place in organized retail stores, according to Technopak, a Indian consulting firm. The rest takes place in small shops. By contrast, organized retail makes up more than 20 percent of sales in China and 36 percent in Brazil — the two emerging economies to which India most frequently compares itself. (The figure is 85 percent in the United States.)
For decades, Indian regulations and the country’s weak infrastructure have favored small shopkeepers. Foreigners, since 1997, have been allowed to participate only in wholesale trading — a segment in which indigenous operators have historically thrived.
In some cases, the government has granted these traders monopolies. Many Indian states, for instance, require farmers and retailers to sell and buy fruits and vegetables only through wholesale markets controlled by committees of traders.
But Wal-Mart’s experience here in the state of Punjab, one of India’s richest and long the country’s bread basket, provides a glimpse at what could lie ahead for the Indian retail sector.
Two years ago, the company started opening Indian wholesale stores called Best Price, that can sell only to retailers, hotels, restaurants and other businesses. The stores are owned jointly by Wal-Mart and Bharti in a partnership that has four wholesale stores in Punjab, among its 15 total in the country.
Raj Jain, president of Wal-Mart India, said that the partners were now expanding in India’s south and west and that Wal-Mart and Bharti had begun discussing plans for a new retail strategy that, he said, would be announced in the “next few months.” But it will depend on what government officials say on Wednesday to Parliament.
Wal-Mart, which does not disclose its revenue in India, had about 4,000 employees in the country as of August. The Jalandhar store, which opened in August 2010, looks and feels like Wal-Mart’s American outlets, with broad aisles stacked high with merchandise.
Rajat Agarwal, who runs his family’s grocery store on a busy market street nearby, said he had come to rely on Best Price because it almost always had the products he sold at his store. Often, he said, traditional wholesalers run out of the most popular brands like Sunsilk shampoo and Aashirvad wheat flour.
Prices also tend to be consistent at Best Price, in contrast to the constant jockeying by the local wholesalers who offer deep discounts when they have too much supply and then push up prices when they are running low.
And yet, Mr. Agarwal complains that the Best Price store has also effectively become a competitor. That is because anybody with a valid business registration can buy from it, and the store has 50,000 member-customers. As a result, in addition to buying supplies for their businesses, many people end up doing their household shopping there, too.
Loading a large consignment of supplies at Best Price one day last week, Mr. Agarwal complained, “This is not a wholesale store.” Instead of being able to buy single items, as at a retail store, he said they should be required to buy wholesale quantities. “They should have to buy six or 12,” he said.
Sumit Gupta, the Best Price store’s manager, said there was little he could do to prevent its members from buying whatever they wanted, as long as they could show that they were registered business owners. The company stocks individual packets of many things, he said, because small retailers demand the option to buy in small quantities.
For now, Mr. Agarwal straddles two commercial worlds.
The morning after stocking up at Best Price, his own shop, Kwality Super Store, was buzzing with customers. Mr. Agarwal and his father, Anil, stood behind the counter. As in most Indian stores, there was no cash register. Mr. Agarwal asked customers to call out the items they were buying, and he hand-tallied the totals on small slips of paper.
One customer, Bhupinder Singh, bought tea, soap, lentils and other supplies. He said he frequented Mr. Agarwal’s shop — but also the Easy Day retail outlet that Bharti has opened down the street.
Easy Day often has prices of up to 10 percent less on packaged goods like biscuits. But he sells the milk from his dairy to the Agarwals, and the family offers him credit on his groceries or offsets his purchases against what it owes him for milk.
Which store he visits, he said, “depends on how I feel that day.”