Case Study: Can Walmart Crack the Retail Code in India?

Global retailers that have set their sights on India face

special challenges. Major International retailers like Walmart and

Tesco currently account for only a small percentage of India's

nearly $$500$ billion in annual retail sales.

The vast majority of Indian retail activity is conducted in cramped

stalls with about $50$ square feet of floor space. There have been many

calls for regulatory reform, and some observers believe organized

retailing will grow at a rate of $30$ to $35$ percent in the next few years.

For now, however, for many years the government of India has been

concerned about the impact of large multinational retailers on the

millions of small$-$scale, "mom$-$and$-$pop" stores.

Modernization of the sector is inevitable, although it has been

slow in coming. Until the law was changed in $2012,$ Walmart and

other global retailers that sell multiple brands were barred from

participating directly in the Indian market. In $2006,$ Bharti

Enterprises, a local business group that operates India's largest

cellular network,

an nounced a joint venture partnership with Walmart. However,

because of restrictions in place at the time, the venture consisted of

wholesale stores. When single$-$brand retailers such as Benetton, Nike,

Pizza Hut, Reebok, and Subway first came to India, they were

required to use franchising as a market$-$entry strategy.

Recent regulatory changes have made it easier for such

companies to have a majority stake in Indian operations. However,

there are strings attached: The government has demanded that

foreign retailers invest $$100$ million in India, with at least half the

money

going to so$-$called "back end" operations and infrastructure

including cold storage facilities and transportation infrastructure. For

its part, the government has invested more than $$4$ billion in

infrastructure improvements between $2015$ and $2018.$ In addition,

each of India's $28$ states retains the right to approve or ban foreign$-$

owned stores.

Western retailers often have to work with local vendors to help

them improve their quality. For example, as the Bharti$-$Walmart

venture opened its wholesale cash$-$and$-$carry supercenters that serve

small retailers, it had to contend with India's poor infrastructure and

inefficient supply chains, which stem from producers using outdated

techniques. Produce is typically transported on open trucks, horse

drawn carts, and tractors to wholesale markets in large cities. There,

it passes through the hands of traders and agents licensed by the

Agriculture Produce Marketing Committee. It is then transferred to

smaller markets or warehouses that are not temperature controlled.

By the time it gets to consumers, the produce has passed through as

many as seven intermediaries; much of it is spoiled. In fact, according

to government estimates, one$-$third of the country's produce$-$worth

$$10$ billion$-$spoils each year.

In India, Walmart must do much more than just set up wholesale

and retail stores. It is trying to transform India's agriculture sector by

using its hyperefficient practices to improve productivity and speed

the flow of produce and other goods. Walmart and a partner, Bayer

Crop science, work with farmers to improve yield and quality. In

addition, Walmart has begun bypassing traditional middlemen by

signing up farmers and sending its own refrigerated trucks to the

farms. One reason farmers like working with Walmart: The global giant

pays the farmers promptly.

Meanwhile, anticipating the arrival of the global retailers, local

operators in India are investing for the future. For example, Pantaloon

Retail Ltd$.,$ India's largest retailer, operates the Central and Big Bazaar

department store chains and Food Bazaar, a supermarket chain.

Ironically, Kishore Biyani, Pantaloon's chief executive, has succeeded

by giving lower$-$middle$-$class shoppers a familiar retail experience:

cramped stores with an environment that Western shoppers would

find chaotic. Large business groups such as Reliance Industries, a

petroleum refiner, and Birla Group have also entered the retail sector.

Meanwhile, Hindustan Lever, the Indian unit of packaged goods giant

Unilever, has launched a consultancy service to help the "mom$-$and

pop" retail operators become more competitive.

During his tenure as Walmart's CEO, Mike Duke was

undaunted by the challenges his company faced. "The people of

India are

missing out on the opportunity right now because of the inefficiency

of the supply chain. But I am patient, and I believe that over time

the process will get worked out," he said. Meanwhile, Walmart

moved ahead in other key emerging markets. In Africa, for example,

Walmart spent $$2\mathrm{.}4$ billion to acquire a stake in Massmart, a chain

with $288$ stores in South Africa and $13$ other African countries.

Although South Africa's population is only $50$ million people, the

population has

embraced shopping, and the transportation i