Wal-Mart, the largest retail in the world is in precarious situation in India. The government of India is regulating and has barred any multi-brand retailer to sell directly to end consumers, however growing perception amongst people is that it has been allowed back door entry by allowing them to carry out wholesale cash-and carry business. At the moment it looks as if Wal-Mart is a victim of its own size and revenues. Is Wal-Mart really the threat to Indian Economy and Agrinomoy or is it has become a necessary evil to feed the growing needs of Indian consumers who have tasted organized Retail and would only wanted better and bigger and faster?  

Why Indian Government, people and companies are always dwarfed by the size of the companies entering the market? Is the fear is well placed? Consider this, in retail segment across the world the local companies are the leaders in the market! Wal-mart is the leader in USA its parent country but its Tesco in UK, Carrefour in France, Metro in Germany, Lianhua in China and Aeon in Japan who are the leaders. And now Tesco is expanding in USA as well.

No doubt with current revenue of $268 billion, Wal-Mart is a giant of a company. But it has not been able to place no 1 position elsewhere in the world. In fact Wal-Mart with a price leadership through famous acronym “EDLP” (Every Day Low Price) is facing problem at local turf too from Target, Cosco, Home depot and biggest of all from himself of cannibalism. The increasing inflation and rising unemployment is beginning to hit the competitive differentiator- price. In fact Target’s better quality products, suburban location, higher customer base and in-store merchandising has become Wal-Mart’s nightmare. Whereas growing international seems obvious choice for Wal-Mart where International sales are currently contributing approximately ¼ of the company’s total revenue.

India is a huge, multicultural, diverse, economically and linguistically varied country which on exactly opposite side of the world from its developed western countries. Then there is constant political and economic instability and billion people. A deeper understanding is required for anyone to penetrate and establish the market especially when unorganized retail of 12 million kirana stores and mom-n-pop stores has lots of competitive advantage of high inventory rotation, low or no taxes, long relationship, deeper reach and above all knowledge of the taste, cultural, preferences of the market. The real question here is when the country has woken up to its new found consumerism and consumption, Is it possible to reign in this consumer now? Where the fast food brands like McDonald’s and Pizzahut have penetrated tier II and III towns, Audi and Bentley’s are not rare sights. Wouldn’t it be hypocritical to shout “Go home Wal-mart” or is it just a political drama?

Wal-Mart has become the necessary evil, as the country has reached point of no return. It’s protective or license raj like attitude towards retail is in fact like trying to snatch a bone from a dog’s mouth, you may not allow the dog to swallow the bone but you don’t have the guts to snatch it away too. On the other side allowing single brand retailers to operate with 51% FDI makes the intent even muddier than ever.

The retail industry can really use a shot in the arm which is struggling with challenges like unplanned malls, high real estate, poor infrastructure and supply chain, high taxes, changing regional political equations, unionism, regional people uproar, untrained manpower, high wastage, changing tastes and preferences and now inflation. Though the industry offers a lucrative potential and growth but has a longer gestation period. That’s why even giants of companies like Reliance, Tata, ITC etc are struggling to get a foothold in the sluggish quicksand.

The induction of international retailers’ likes of Wal-Mart could increase the reach of the commoners to better products and quality owing to their worldwide network and high purchasing power, they would bring newer technology, boost rural development and improve the infrastructure and supply chain. This would also shakeup the wastage and inefficiency currently value chain. The only people who would probably get trade down in this deal are the middle man who jack up the prices and rake in the profit; people at both end of the chain are left exploited. Wal-Mart’s mission, “saving people money so that they can live better” may hold true. The people have the rights to choices and quality products. Had there been no Automobiles market boom, we could have been still living in the Ambassadors and Fiats era, there would have been less pollution, but can you imagine how commuting would have been in the shaky public transport. Think about it when you sit in your air-conditioned car.

Wal-Mart’s growth emanates not only from negotiating better prices owing to their big ticket purchase or economy of scale, but also from their investment in technology, packaging, training, inventory control and management. These ones transferred to India/ Indian companies would change the ecosystem of the retail industry. It would bring in efficiency in the supply chain, the producers and the consumers would be benefitted in the longer run. The infrastructure would open up new age of consumerism and consumption itself. The food chain would get smaller with middle man would be greatly eliminated who does not add any value but just margins at the moment, besides making it more transparent.

The above evolved ecosystem would also press for closer monitoring of demands of the market rather than being seasonal for e.g. today the farmers work in unorganized herd or trend mentality. If this year potatoes have fetched good prices everyone sow potatoes next year, which will lead to over supply thus fall in prices and wastage. A lot of times farmers dump their products on the roadside as the cost to even carry them back becomes expensive the product itself. Thus with evolved retail market the same would be monitored by demand and supply based on consumption of the people and would be closer to the changing preferences of the people. With the increased globalization the influx of taste has trends have also become faster and diverse.

Thus India with its rising affluence and burgeoning consumption class is craving for this change in the ecosystem of what and how it buys. Wal-Mart is necessarily an evil to act as catalyst for this change, being the biggest retailer to enter India.