mr wal-mart

8/8/2019 mr wal-mart

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Wal-MartIndia

-Pavan Govekar


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Wal-Mart has a higher turnoverthan any other company on thisplanet. And now, it is keen to setup shop in India, as the recent

visit of its CEO John Menzerunderscores. What is thelure(attraction)? What are theretail majors imperatives? Anu

Saraf reports on Wal-Mart'sgrowing interest in India.`


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What Brings Wal-Mart To

INDIA?


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The size of Indias retail trade is

estimated at $206 billion and growingat five per cent annually.


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The first business visit to India of John BMenzer, President and CEO, WalmartInternational seemed to presage thechange in policy. It may be noted thatWalmart still functions largely as anAmerican company. Its internationalpresence is restricted to ten countries of

which only two are Asian China andSouth Korea. It has not entered any new

market since '02.


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The Indian retail scenario is booming andIndian retailers are doing well across theboard. Current profits in the organised retailtrade are good and the future seems evenmore alluring. We have empirical evidence

that the average urban consumer is savingless today than he did a few years ago andimportantly, spending his income on a widerarray of goods than earlier. The current

mood of the market is expansionist withconsumers willing to lap up newer andbetter brands'


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Menzer has obviously observed

the Indian market keenly and is aware of itschallenges. He says, "India is a price sensitivemarket and therefore we will be devising ourstrategy for her very carefully. Adds Menzer"Retailing is like a game of three dimensional

chess where we operate as a local, regionaland global player, so depending on the needsof the market we shall change our format andadapt."

He cites the example of South Koreawhere the company has multi-storied outletsthat stock merchandise on the lower floors withthe higher floors being reserved for parking.


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Says Elizabeth Keck, Director, InternationalCorporate Affairs Walmart International,"We sourced approximately $1.2 billionworth of merchandise from India last yearand are aiming to increase that by almost

30 per cent every year, thereby doublingour sourcing in the next three years. We arealso interested in exploring investment inIndia's retail market if this segment of theeconomy is opened for foreign directinvestment."


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Products that are sourced include apparel,fine jewellery, home textiles and houseware.Items for which sourcing is on the rise arestationary and office supplies, electronics,

seasonal handicrafts, leather goods, shoes,and food.


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Known for the strict quality standards, andtight price levels it enforces, Walmartnonetheless has suppliers eager to supplymerchandise to it.


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With reports that the US is mounting pressure onChina to revalue its currency and the latter hiking tax on exports, the combined effect ofwhich would make goods costlier, India isemerging as a preferred destination for Walmart's sourcing. Already Walmart's suppliersin Singapore and the Middle-East have also

expressed their interest in shifting production toIndia.Says Andrew Tsuei, Walmart's vice-

president and managing director Globalprocurement, "Cheaper raw material andavailability of trims allow Indian companies to

reduce production lead time, which isimportant to the retail industry." Apparelsaccount for 30 per cent of Walmart's totalsourcing from the country and the companyplans to scale this up significantly in the nearfuture.


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By the end of Menzer's visit, the

questionbeing asked was, When will Walmart's

time come


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}

Retail giant Wal-Mart, still limited byrules barring multi-brand foreignretailers in India, expects supplychain woes to make fast expansion

in the country difficult, the chief ofits Indian joint venture said.

} India's USD 450 billion retail sector islargely closed to overseas firms, with

those carrying multiple brandsrestricted to cash-and-carry, orwholesale, outlets like the ones Wal-Mart operates in India.


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} Earlier this month, the government took atentative step towards opening the

organised retail sector to foreigncompanies by circulating a discussionpaper on the issue, and Wal-Mart, theworld's biggest retailer, has said it couldopen hundreds of stores in India if rulesare relaxed.

} But in a country where at least 40% ofproduce is wasted because ofinadequate storage and transportation,large investments in warehouses,refrigerated trucks and other amenitiesare needed.

} "The larger issue in our country is supplychain," Raj Jain, managing director andchief executive of the three-year-oldBharti Wal-Mart venture, told ReutersInsider television.


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Bharti Enterprises

vice chairman andMD Rajan BhartiMittal(holding

Mango), at the

opening of theBharti-Wal-Mart store

in Amritsar.


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Wal-Mart opened its cash-and-carry joint

venture with telecom giant BhartiEnterprises here today amid triumphal criesof Bharti-Wal-Mart is King. But it is still a fewsteps away from rolling out its complete act

India does not allow foreign directinvestment in retailing. But the high-pitchedlaunch once again brought to the fore thedemand for allowing FDI into retailing. RajanBharti Mittal, vice chairman and MD of

Bharti Enterprises, said FDI in retailing mustbe allowed given the vast potential in thesector in India.


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In most countries, supermarket chains

create and manage well-oiled supplychains to offer consumers lower prices anddampen inflationary trends. Inflation in Indiais touching decade-highs. But then its afallacy that in India it is always about lowprice. Companies like Tata, Birla andReliance have all attempted to enter food-and-grocery retailing in India with mixedsuccess. Will Wal-Marts supply chain work

in India?


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} "India is a price sensitive market and therefore wewill be devising our strategy for her verycarefullyRetailing is like a game of threedimensional chess where we operate as a local,

regional and global player, so depending on theneeds of the market we shall change our formatand adapt." John B Menzer, President and CEO,Wal-Mart International.

} "India is not a homogeneous market, so ours is nota cookie-cutter approach from the U.S. Wal-

Mart is in no hurry to unfurl the Wal-Mart flagnationally. The easiest thing is to roll out stores, butthe most difficult is to sustain and feed them." -RajJain, President of Wal-Mart India inMay 2009.

} "Wal-Mart operates with multiple private brandsaround the world. In each market that weoperate, we look to be local. We treat eachmarket as unique and India, in this respect, is nodifferent." -Arti Singh, vice-president of Corporate

Affairs at Bharti Wal-Mart.


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90% of ourproducts are

sourced locally: President,Wal-Mart India


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Indian Consumer BuyingHabits 1As Indian's we hold a lot of value for the 'old',maybe it is also culturally driven where we have

been asked to respect 'old' rather than look fornew. Though this is changing very fast especiallyamong the younger generation of consumers,but it will take a lot of time before we actuallycatch up with our western counter parts. And it

is even questionable whether such a transition isa good one. Anyway without getting into'consumerism' debate I will like to look into thisaspect in detail from a marketer's perspective.


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Most of us have an uncle who wouldproudly show of his old watch, " I have beenusing this watch for the last 30 years , thiswas gifted to me when I was in class 10" .This is a nightmare come true for amarketer, if every consumer were to use hiswatch for eternity then ......


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Similarly most housewives collect the used

containers of flour, ghee ,,, which she wouldclean and use it to store cereals , and otheritems in the kitchen and so on till it is sold tothe scrap dealer . Companies like Pilot ,when they launched their Pilot pens in India,

were surprised by the demand fromconsumers that they wanted a refill for theirpens. This was unheard of in the Japanesemarket as the pens were designed as 'useand throw' . The local partner of the

company had to produce inks locally whichcould be used to refill the pens.


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This value which we hold for anything old inour house has been quite successfullyexploited by many marketers. Their solution tothis issue is offer an 'exchange' scheme' to theconsumer. By doing so the company is givingsome value to the consumers in return for theold. Most successful was Akai and it'sexchange scheme which ended upchanging the face the TV market in India.Even Bajaj use to bank on this value for a long

time, its ads use to exclusively talk about themoney one would get when it is sold later.


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A more recent example is theannual "The Great ExchangeOffer" by BigBazaar, with an offerto buy all the old scrap material(Kabaad) at prices much higherthan what prevails in the open

market, like Rs 25 per kilo ofnewspapers , old tires at Rs 50and so on. The condition beingthat one has shop four times thevalue of the old scrap which

they sell there to able to redeemthe value of exchange.


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Consumer spending can be categorized intoregular spends and lifestyle spends. Regularspending includes the basic necessities of life,while lifestyle spending includes spending on acomputer, internet, car, cell phone, etc.Analysis of consumer spending in the past 10years reveals that the average consumer has

been spending on an increasing number ofdifferent goods. There are a number of factorsaffecting the consumer spending pattern inIndia; these include growing income levelsresulting in more disposable income withindividuals, changing attitudes towards

consumption, changes in prices, introduction ofnew products, availability of credit such asloans, mortgages and credit cards, risingaspiration levels, increased literacy, growingbrand consciousness and rapid urbanization.


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Spending habits are different for peoplebelonging to different sections of society. Forinstance, people belonging to the middle classconsider basic necessities and education andspending toward the future of their children astheir top priorities, followed by lifestyle goods.The rich class spends more on luxury goods andinternational brands. The super rich class spendson ultra luxury goods. It is observed that as

disposable income increases, people prefermore of branded goods, shift to processedfoods, and the expenditure on food,beverages, tobacco, and transport andcommunication also increases. A comparison ofconsumer spending habits in 2002 with those in

2007 revealed that expenditure on food,clothing and personal care has remained moreor less constant, but expenditure onentertainment has increased.


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} Shopping habits of Indians are changing dueto their growing disposable income, relative

increase in the younger population, and thechange in attitudes towards shopping. Theemphasis has changed from priceconsideration to design, quality andtrendiness. The desire to look and feel good isalso guiding factor for customers while

making their purchase decisions. Growingdisposable income is also propelling demandfor consumer durables and eating inrestaurants among Indians. Age is also amajor factor that affects the spendingdecisions of an individual. For instance,people in 20-24 years age group spend moreon electronic / home appliances and movies,while people in the 45-48 years age groupspend more on vacations.


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}Consumer spending is an important factorthat affects the economic growth anddevelopment in a country. In the future,India and China are projected to be thepowerhouses of Asia in terms of growth inconsumption, wages, and GDP.


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} Consumer spending can be categorized intoregular spends and lifestyle spends. Regular

spends include grocery, eating out, booksand music, personal care items, consumerdurables, savings & investment, clothing,footwear, accessories, movies and theatre,entertainment, vacation, and home textiles.Lifestyle spends include payment forhousehold help, gifts, furniture,computers/laptops, mobile phones, andInternet connections.


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} The liberalization of the economy in 1991has had a significant impact on thenature of spending among consumers inIndia. The portfolio of spending categoriesfor the average Indian has increased from1991 to 2007.


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} In 1991, the average Indian spent on 8product categories, where as in 2007 thenumber of categories increased to 17,and included mobile handsets, gifts, anddurables, among others.


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} Major factors influencing the increase inspending categories include rise in disposable

incomes, increasing number of dual-incomenuclear families and changing attitudestoward consumption. The attitude of peopletoward shopping has changed from it beinga regular chore to one that provides anenriching experience. According to RaviRaheja, MD, Raheja Group, Consumers don'twant to experience shopping, they want toshop for experience.


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}Consumer spending has played a vitalrole in the economic development ofIndia. According to a report published bythe Bank of Baroda in 2006, consumerexpenditure is fueling economic growth inIndia...


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Different Segments Of IndianConsumers

} TheSocialites

} The Conservatives

} The Working Women} IndiasRich} TheRich} TheSuperRich} The Ultra Rich}

TheSheerR

ich} The Obscenely Rich

} Rural Consumer


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} Socialites belong to the upper class. Theyprefer to shop in specialty stores, go toclubs on weekends, and spend a goodamount on luxury goods. They are alwayslooking for something different. They arethe darlings of exclusive establishments.

They go for high value, exclusiveproducts. Socialites are also very brandconscious and would go only for the bestknown in the market.


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} The Conservatives belong to the middle class. Theconservative segment is the reflection of the trueIndian culture. They are traditional in their outlook,

cautious in their approach towards purchases, spendmore time with family than in partying and focusmore on savings than spending. Slow in decisionmaking, they seek a lot of information before makingany purchase. They look for durability andfunctionality but at the same time are also imageconscious.

} They prefer high value consumer products, but oftenhave to settle for the more affordable one. Thesehabits in turn affect their purchasing habits wherethey are trying to go for the middle and uppermiddle level priced products.


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} The working woman segment is the one,which has seen a tremendous growth in the

late nineties. This segment has opened thefloodgates for the Indian retailers. The workingwoman today has grown out of her long-standing image of being the homemaker.Today, she is rubbing shoulders with men,proving herself to be equally good, if not

better. Working women have their own mindin decision to purchase the products thatappeal to them.


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IndiasRich


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} The rich have income greater thanUS$11,000/- per annum. Total household

having such incomes are 1,058,961. Thesepeople are upwardly mobile. Some of themin this category are Double Income No Kids(DINK) households. They spend more onleisure and entertainment-activities than onfuture looking investments. Across the

category, backgrounds are distinctly middleclass. They aspire, therefore, to attain thesuper-rich status.


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} The Super Rich have income greater thanUS$22,000/- per annum. Total number of

households is 320,900. There are less DINKfamilies here than in the rich category.The Super Rich are mainly professionalsand devoted to consumerism. They buy

many durables and are status conscious.


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} The Ultra Rich have income greater thanUS$44,000/- per annum. The number of

households in this category is 98,289.There is no typical profile of the ultra-rich.There are some DINK households ofmiddle-level executives. Some single

earning households are of first generationentrepreneurs. Some rich farmers, whohave been rich for a long time, belong tothis category.


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} The Sheer Rich is made up by householdshaving income exceeding US$110,000/-

per annum. Such households are 20,863.They do not have a homogenous profile.There are joint families as well as nuclearfamilies in this category. They consume

services greatly. They own multiple carsand houses. They aspire to social statusand power.


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} The Obscenely Rich is made up ofhouseholds having income exceeding

US$222,000/- per annum. There are hardly6,515 such households in India. They arefirst-generation entrepreneurs who havemade it big. Some of them are techies. Avariety of people belong to this category.

They are just equivalent to the rich in thedeveloped countries. They crave forexclusivity in what they buy. Mostpremium brands are relevant to them.


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} About three quarters of the Indian population are inthe rural areas and with the growing middle class,specially in the Indian cities, the spill over effect of

the growing urban middle class is also felt in the ruralareas.}

} The Indian rural market has been growing at 3-4% perannum, adding more than 1 million new consumersevery year and now accounts for close to 50% of thevolume consumption of fast-moving consumer goods

(FMCG) in India. The market size of the fast movingconsumer goods sector is projected to more thandouble to US$ 23.25 billion by 2010 from the presentUS$ 11.16 billion. As a result, it is becoming animportant market place for fast moving consumergoods as well as consumer durables.

mr wal-mart

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