Wal-Mart in India

‘In most countries, supermarket chains create and manage well-oiled supply chains to offer consumers lower prices and dampen inflationary trends. Inflation in India is touching decade-highs. But then it’s a fallacy that in India it is always about low price’. Companies like Tata, Birla and Reliance have all attempted to enter food-and-grocery retailing in India with mixed success. Will Wal-Mart’s supply chain work in India?

     

Contents

  1. Introduction – Wal-Mart’s first store in India
  2. Joint venture with Bharti Enterprises
  3. About Wal-Mart
  4. Wal-Mart – Background Note
  5. Wal-Mart – Timeline
  6. Wal-Mart – Quick Facts
  7. The world’s largest retailer isn’t new to India
  8. India’s first special skills training centre
  9. Exhibit – Wal-Mart’s business model in India
  10. Mera Kirana programme
  11. Exhibit – Foreign hypermarket chains in India
  12. Wal-Mart Internationally
  13. Exhibit – Wal-Mart and Expansion into International Markets
  14. Wal-Mart’s imperfect success record in a foreign country
  15. Cost-Leadership Strategy- Wal-Mart’s core philosophy – EDLP (every day low prices)
  16. Will Wal-Mart succeed in expanding outside the U.S.?
  17. Best Practices and lessons from the International Markets
  18. Wal-Mart India – Plans and Challenges
  19. Wal-Mart’s Strategy and Supply Chain tuning for India
  20. Physical and Regulatory Challenges
  21. The Indian Consumer
  22. Bringing private label suppliers to India
  23. Will the kirana store go out of business?
  24. Advantages of a small Indian shopkeeper – The Kirana store
  25. Exhibit: Wal-Mart – Store Formats
  26. Exhibit: Wal-Mart – International operating formats
  27. Questions for Discussion

Sample Page/Content

“India is a price sensitive market and therefore we will be devising our strategy for her very carefully…Retailing is like a game of three dimensional chess where we operate as a local, regional and global player, so depending on the needs of the market we shall change our format and adapt.” – John B Menzer, President and CEO, Wal-Mart International.

“India is not a homogeneous market, so ours is not a cookie-cutter approach from the U.S. …Wal-Mart is in no hurry to unfurl the Wal-Mart flag nationally. The easiest thing is to roll out stores, but the most difficult is to sustain and feed them.” –Raj Jain, President of Wal-Mart India in May 2009.

“Wal-Mart operates with multiple private brands around the world. In each market that we operate, we look to be local. We treat each market as unique and India, in this respect, is no different.” –Arti Singh, vice-president of Corporate Affairs at Bharti Wal-Mart.

1. Introduction – Wal-Mart’s first store in India

In December 2006, Wal-Mart Inc. believed that by the year 2015, 35% of India’s retail sales could be from chain stores . This was a radical increase from the prevailing 2%. In May 2009, Wal-Mart was ready to open its first store in India. The reason for Wal-Mart’s entry in India was clear – The Indian middle class . The world’s biggest retailer had been silently working on its strategy for India for around two years. Mom-and-pop stores and traditional distribution networks dominated the $375 billion Indian retail market. Wal-Mart’s first outlet was set to launch in the city of Amritsar, Punjab in North India. The first store air-conditioned and built over 50,000 sq. ft. was on the outskirts of the city, Amritsar. The store employed 200 locals and was likely create 500 indirect jobs. In the first few weeks itself, the company had managed to sign on close to 35,000 members. However, the debut outlet was not to carry the familiar Wal-Mart brand. Did this mean Indian consumers could not benefit from Wal-Mart’s everyday low prices?

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Case Updates/Snippets

  • 50:50 joint venture: In India, Wal-Mart has a 50:50 joint venture with Bharti Enterprises in the wholesale cash-and-carry segment.
  • Direct Farm Program: Multinational retail giant, Wal-Mart’s Direct Farm Program in India is a partnership with 110 small and marginal farmers near Ludhiana in Punjab where it encourages cultivation of safe, high-quality, seasonal vegetables. Farmers are advised at every stage of cultivation by field agronomists. Farmers learn about nursery management, transplanting, nutrient management, as well as harvest and post-harvest practices.
  • Wal-Mart India in 2010: In 2010, Bharti-Wal-Mart plans to launch seven Best Price Modern Wholesale Cash-And-Carry stores across India. These stores will be 100,000 sq ft in size and each store will involve an investment of $6-7 million.
  • Sourcing from India: Wal-Mart has a large sourcing business in India. The retail major sources goods worth $125 million a year from Punjab. In 2010, Wal-Mart is planning to increase sourcing from India to strengthen its global business.
  • Preference for Kirana/local retailers: According to a survey by ASSOCHAM in early 2010 in which it interviewed 5000 shoppers in various cities in India, kirana stores (mom and pop stores) and local retailers were the preferred destination for shoppers as compared to shopping malls. The survey found that goods were less expensive (as much as 25%) in local kirana stores as compared to big shopping malls. Smaller stores also offered more variety and affordable options with sustainable quality at a negotiable price (reduced margins).
  • Training centers: Inheriting a model from its U.S. parent, Bharti-WalMart (Best Price Modern Wholesale) intends to set up its own training centers to train less-privileged youth to work in retail stores.
  • FDI in retail in India: In India, the Government did not allow foreign investment in multi-brand retail. It allows 51% FDI in single-brand retail and 100% in wholesale venture. (Update: The Indian Govt. has changed its policy towards multi-brand retail in Nov 2011) In 2007, Walmart Stores and Bharti Enterprises entered into a joint venture and began cash & carry stores under the brand Best Price Modern Wholesale.
  • Carrefour in India – Carrefour Wholesale Cash & Carry: In December 2010, Carrefour, the French international chain, launched its first cash & carry store in India (in the capital in New Delhi). The store with an area of 5200 square meters offers about 10,000 SKUs in food and non-food to local businesses, restaurants and local mom and pop stores.
  • METRO Cash & Carry in India: In 2003, METRO Cash & Carry entered the Indian market in the self-service wholesale category. By early 2011, it had six wholesale distribution centers in four major cities (Bangalore, Hyderabad, Mumbai and Kolkata). The company caters to business customers (hotels, offices and small retailers) and sources a large part of its products locally from local suppliers, co-operatives and self-help groups.
  • WalmartLabs in Bangalore : In addition to its R&D centre in the Silicon Valley, Wal-Mart plans to set up another facility in Bangalore, India (expected to be set up by Dec 2011) with about 100 developers to work on technologies and solutions for Wal-Mart’s global e-commerce business.
  • Wal-Mart’s business plan in India is called “Project Jai Ho.” It means “let there be victory” in Hindi after a popular film song. As per the plan, Wal-Mart aims to be India’s top retailer by 2015.

Glocalization Examples – Think Globally and Act Locally

We have heard a lot about globalism versus localism over the years. In order to succeed globally, even the biggest multinationals must think locally. A few examples:

McDonald’s

In the UK, McDonald’s strategy is to listen more to local consumers and then act on it. The company strives to do this around the world. Some if its local favorites around the world include the McItaly burger in Italy, Maharaja Mac in India, the McLobster in Canada, the Ebi Filit-O in Japan.

McDonald’s has novelty items on its menu in Japan like the Teriyaki McBurger with Seaweed Shaker fries, Ebi Filet-O, Croquette Burger and Bacon Potato Pie. McDonald’s signed model Yuri Ebihara (known as Ebi-chan in Japan) to market Ebi Filet-O. Ebi means shrimp in Japanese.

Starbucks

Starbucks is trying out locally designed franchises in stores. The stores are non-Starbucks branded in order to recapture the feel of a local coffee shop, which would otherwise be threatened by the existence of Starbucks in its vicinity.

KFC

To increase visits from local residents, KFC has initiated a five-year plan to upgrade its UK restaurants with new contemporary designs. Designs will be based on ‘look and feel’ of the area and in collaboration with local property developers.

KFC has a vegetarian thali (a mixed meal with rice and cooked vegetables) and Chana Snacker (burger with chickpeas) to cater to vegetarians in India.

Tesco

When Tesco expanded globally in countries such as Thailand, Hungary and the Czech Republic it kept it’s usual name and branding. However, when it entered the United States, it named it’s stores "Fresh & Easy Neighborhood Market".

Nokia

Nokia responded to local customer needs with the introduction of dust-resistant keypad, antislip grip and an inbuilt flash light for Indian rural consumers (specifically targeting truck drivers).

Hindustan Lever Limited (HLL)

HLL identified the importance of rural customers and invented the shampoo sachets priced at almost a rupee which were an instant hit.

Ford

In 1904, Ford was one of the first automotive corporations to go International with the opening of Ford Motor Co. of Canada. Even Henry Ford II had opined that in order to further the growth of its worldwide operations, any purchasing activity should be done after considering the selection of sources of supply not only in its own company but also sources located in other countries. When Ford had set up its first plant outside U.S., in Canada, it gained considerably from the geographic and cultural proximity.

Viacom’s MTV localized strategy with localized programming

MTV has catered to local taste in East Asia in South Korea, China, India and Japan. E.g. MTV broadcasts on two channels with Chinese music in China and Hindi pop in India. Using joint ventures with local partners, channels are branded accordingly as MTV India, MTV Korea, MTV China and MTV Japan and use more local employees with use of local language.

Whirlpool Corporation

Whirlpool Example 1: Domestic appliance maker, Whirlpool incorporated specially designed agitators into its washing machines when it sold them in India. This helped Indian women wash saris without the five-foot long sari getting tangled. Whirlpool formed a joined venture with a local partner to produce the redesigned washing machine to suit local taste and culture. Whirlpool also makes its refrigerators in bright colors like red and blue as many Asian consumers placed their refrigerator in living rooms as a sign of status. Whirlpool believes in standardizing worldwide what it can and adapting what it cannot.

Whirlpool Example 2: As part of Whirlpool’s global strategy, the company wanted to develop products based on consumers tastes and needs. Whirlpool had done extensive research and found that European customers wanted a microwave oven that could brown and crisp food. Whirlpool then designed and introduced the VIP Crispwave which could fry crispy bacon and cook a pizza with a crisp crust. The product was successful in Europe and later launched in U.S. as well.

KFC – Yum! Restaurants

Global chain, KFC has introduced ‘Krushers’ in the cold beverages segment in India. The range of flavors of Krushers has been altered to suit the Indian taste buds.

Subway

The Subway chain does not have beef in its stores in India.

Taco Bell

The Taco Bell menu in India has crunchy potato tacos and extra-spicy burritos filled with paneer (cottage cheese). Taco Bell has hired employees who explain what burritos and quesadillas are to customers in India.

Coca Cola

In 1955, a Coca -Cola advertisement or documentary (almost 20 mins long) referred to as the “Pearl of the Orient” shows Coca-Cola’s popularity in Philippines and how Coke has merged itself into the Philippines economy and culture.

Heinz

In 2010, Heinz plans to launch packaged food products in India which will suit the Indian taste. Heinz, which entered India in 1994, plans to Indianise the flavors offering condiments, juices and snacks to the Indian consumers.

DisneyLand Glocalization in Hong Kong

In 2005, Disneyland was not that successful in Hong Kong with park attendance and growth revenues. Disneyland then made an effort to cater to the local Chinese taste by reducing prices, adapting to local Chinese customs and labor practices and also changed the decors and settings. Glocalization was successfully applied to the theme park in Hong Kong.

Dell’s Advertising in Japan and Asia Pacific regions

Dell did not use its American Steven Jackson (referred to as the Dell Dude) commercials in Japan and other East Asian countries after its Global Brand Management team used localized focus groups to gauge the TV character’s cultural acceptance. The attitude of the American character did not gel well with Japanese social etiquette e.g Know-all display and speaking to strangers without introduction.

Unilever – Marginal Local Adaptation instead of Total Local Adaptation

Unilever took glocalization (local adaptation) to a new level in the 1990s. Instead of adapting products unnecessarily, it adapted products to the local market marginally i.e. the basic product would be fine-tuned instead of expensive total adaptation. E.g. Unilever identified the need for a regional ice cream and was very successful with its Wall’s ice cream adapting it specifically to the Asian taste (different from the rest of the world). In 2000, it had a market share of 41% to Nestle’s 15%.

Another Unilever ice cream brand Asian Delight was very successful in Asia. Unilever’s Bangkok innovation center redesigned the product and adapted it to local taste (coconut ice cream mixed with fruits and vegetables used traditionally in sweets in the region) and packaging (Thai and English on packaging in Thailand).

Italian Luxury Fashion Retail Brands

Luxury retail brands like Bottega Veneta, a unit of PPR, and Canali, an Italian men’s fashion brand launched limited-edition of clutch (Knot India) and closed neck jacket (bandhgala worn by Indian men) specifically for the Indian market.

Nokia’s multi-SIM devices in the Indian market

Nokia launched multi-SIM devices (C1 & C2 series) in India, after it realized its potential. Nokia’s dual-sim phones were introduced late in the market after competitors LG and Samsung also introduced similar mobile phones. Nokia lost out on early market share (to competitors who introduced multi-sim devices early in the market) but planned to introduce it in other emerging markets as well.

Lenovo’s LES Lite stores in the Indian market

Lenovo India has customized LES Lite stores to expand into India’s key tier 3-5 cities/towns. These Lite stores are smaller versions (around 150-250 square feet in size) of Lenovo’s exclusive stores and with lower costs & break-even points.

Gillette’s low cost razor for the Indian market

Gillette introduced the low cost razor ‘Gillette Guard’ priced at about 15 rupees (~$0.33) in the Indian market. Features included easy rinsing (as water is scarce in Indian rural areas) and unique grip design (the way the consumer held the razor).

Piaggio’s Scooter ‘Vespa’ adapted for the Indian market

In 2012, Piaggio & C. S.p.A., the iconic Italian two-wheeler re-entered the Indian market. It adapted its scooter the Vespa to suit the Indian riders and road conditions. E.g. the rear wheel structure was redesigned to facilitate easier tyre changes, the scooter is more efficient than it is in Europe (62km per litre compared to 35 in Europe), increased ground clearance, slimmer design and a lower footboard to give more legroom to Indian women who ride sitting side-saddle in the back seat.

Starbucks India

Starbucks’ first shop in India (opening in October 2012) will have no beef or pork considered taboo by many Indians. The Indian menu has local favorite Chai Tea Latte and the coffee is sourced and roasted locally. Other food items (many meat free options) include baked goods like Konkani Twist or Chatpata Paratha Wrap to adapt its offerings to local vegetarian tastes. There are even separate ovens and counters for vegetarian and non-vegetarian offerings.

SWOT Analysis

SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats. SWOT analysis is used for identifying those areas where an organization is strong, where it is weak, the major opportunities the company can explore and the threats. SWOT analysis is a useful tool for assessing the strategic position of a business and its environment. SWOT Analysis helps a company to know where it stands by exploring key issues:

Strengths:

  • What do we do well?
  • How are we better than our competitors?

Weaknesses:

  • What could be done better?
  • What is being done badly?

Opportunities:

  • What are the opportunities that can be exploited?
  • What are the interesting trends?

Threats:

  • What obstacles are being faced?
  • What is the competition doing?
  • Are the specifications for the products or services changing?
  • Is changing technology threatening our business?

SWOT Analysis Example

Sample SWOT Analysis for CONMED Corporation: (for illustration purposes only)

Strengths
  • Global Presence, International Sales approximated 29%, 33%, 35% in 2002, 2003 and 2004 respectively
  • Strong Manufacturing base
  • Clinicians and administrators desiring non-invasive procedures
  • New product introductions
  • Acquisition of key technology like ECOM
    		•
  • Certain products like surgical suction tubing and ECG electrodes are commodity products with little differentiation possible
  • Higher incremental costs in 2005 until manufacturing of the acquired products is integrated
    		•  Weaknesses
    Opportunities
  • Scope for new product or technology introductions
  • Current research focus on reflectance technology products which permits non-invasive analysis of blood oxygen levels in clinical situations
    		•
  • Continued cost containment pressures in highly competitive market
  • Change in regulatory environment
  • Patent Litigation risks
    		•

    Threats

    CONMED Corporation (CONMED) (NASDAQ: CNMD) develops and produces medical and surgical procedure instruments.

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