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Wal-Mart for neighbourhood model

india Updated: Feb 11, 2007 13:44 IST

Away from the political backlash against its entry into India, the world's largest retailer has been keeping domestic rivals guessing about the format it would adopt in this country, where grocery shopping is an industry by itself.

Wal-Mart, better known for its large stores like hypermarkets and supermarkets spread over thousands of square feet, may go in for the neighbourhood store format keeping in mind the Indian consumer's preference for this model.

"We expect Wal-Mart and Bharti to explore the neighbourhood market concept because groceries are one of the largest retail categories with the least organised retail competition in India," a former Wal-Mart adviser and US-based global retail investment firm Growth Ventures Group's Chairman and CEO Love Goel said.

Though foreign multi-brand retailers are barred from setting shop in India, Wal-Mart has tied up with Bharti Enterprises to gain a toe-hold in the country.

While the Left parties fear that entry of multinational retail players would slowly kill the estimated 13 million mom and pop stores, Congress President Sonia Gandhi too has joined the chorus of opposition against FDI in retail.

Even though fully opening up retail sector to foreign players still remains an issue, domestic petrol and petrochemical major Reliance Industries has entered the field and already boasts of over 40 neighbourhood vegetable and grocery stores across five cities.

Wal-Mart, which has a revenue of 320 billion dollars, is the largest retailer of groceries in the US. So, it could be anybody's guess what format it would choose for India. Wal-Mart has often adapted itself to the local needs, like in Brazil where there is a greater emphasis on neighbourhood stores inside cities, Goel said.

The company has already become the third largest retailer in Brazil by following the right format concept, Goel added.

However, the going might not be as easy for the company in India, where a number of retailers like Big Baazar and Vishal Megamart are expanding their presence with large-format neighbourhood stores and domestic conglomerate Reliance Group, which has also purchased land in the vicinity of residential areas in various cities for its retail stores.

Wal-Mart and Bharti are likely to use one of Wal-Mart's proven store models that range in size from 40,000 square feet for neighbourhood stores to 20,000 square feet for its super-center stores, Goel said.

The US giant might also try out membership schemes to gain the customers' loyalty in wake of intensifying competition in the retail market sector, the experts believe.

"With more than nine groups from Birla and Tata and Ambani investing over one billion dollars in next few years in retail, it will be important for retailers to create loyalty with customers rather than drive profit margins down by competing on price," Goel said.

Membership clubs like Sam's Club (being operated by Wal-Mart in US) are a great way for retailers to offer lower prices while creating loyalty among its customers as well, he added.

According to experts, the relationship with Bharti could prove to be an asset if Wal-Mart decided to combine their retail concept with a direct-to-consumer approach by selling through catalogs, internet, mobile phones and television. "In that case, not only most orders are placed on phone, but the after-sales customer service is also handled through phone," Goel said, adding it could pave the way for the most optimal, capital-efficient and fastest method for organised retail to grow in India.
 
According to the experts, while neighbourhood stores appear to be the best format for Wal-Mart in India, it could also try out away-from-city locations.

Wal-Mart's approach of buying cheap land in rural or urban locations could be successful in India as proven by a number of big malls, which have sprouted up on the outskirts of big cities like Delhi and Mumbai.

"With the explosion in the number of automobiles and vehicles, transportation is not necessarily a limiting factor," Goel said.

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