For five years, Raj Jain fought to bring Wal-Mart to India. After finally getting his wish on Friday, now comes the hard part for Jain, country head for the world’s biggest retailer, which must negotiate a thicket of restrictions to set up shop in the world’s second most-populous country.
Turning a profit in India for global supermarkets is widely expected to prove even tougher than in China, where Wal-Mart Stores loses money after a dozen years and restrictions are fewer than those imposed by India.
Wal-Mart, which has been ramping up its wholesale operation in India, where it operates 17 of the cash-and-carry stores allowed under the old rules, is determined to get its retail business right in a country where even local chains struggle.
“We are able and willing to invest whatever it takes in the supply chain, in the retail formats to move our business forward,” said Jain.
Bentonville, Arkansas-based Wal-Mart and rivals such as France’s Carrefour and UK-based Tesco Plc did not get everything they wanted.
Foreign multi-brand retailers will be required to invest at least $100 million, with half of that going into back-end infrastructure in rural areas, and source 30% of goods from small and mid-sized local suppliers.
“In the short term it’s a requirement which probably can be met but as the business starts expanding, the issue will be how ... you continue to comply with it as you would have many more suppliers than you will desire to have,” said Jain, who expects it take 12-18 months to open the first India store.
India’s organised retail market could attract up to $16 billion in foreign direct investment (FDI) over the next three years, much of that in the farm-to-store supply chain network, according to estimates by Boston Consulting Group.
The rules add to the difficulties of a $450 billion market already so tough that even Reliance Industries, India’ s most valuable company and owner of the second-biggest supermarket chain, has never made a profit in retail.
Heavy price competition, expensive real estate, and poor supply chains make for a tough Indian retail environment.
“The market has opened up in pieces and so it is crucial retailers evaluate the returns on their investments over a medium to long term,” said London-based Himanshu Pal, director of retail insights with consultancy Kantar Retail.
Carrefour, the No.2 retailer, has taken a more cautious approach in India, where it has opened two wholesale stores.
Carrefour has declined to comment on its plans.
“... Food habits actually change every 200 kilometres in India. We need to regionalise that assortment. We need to focus on local flavours, local brands and regional brands,” Jain said.