Walmart Goes At It…. Again The relatively nascent wholesale cash-and-carry business in India has a vast potential. Although it operates at a smaller base compared to traditional B2B retail, the Rs 6,800 crore market has been growing at CAGR of 13%, faster than modern trade. Branded goods from India’s top 10 consumer packaged goods (CPG) companies dominate the wholesale cashand-carry route, yet only 3% of small manufacturers make use of the channel. Despite four major players including Walmart and Metro operating 92 stores, a meager 2.6% of all consumer product goods trading moves through the organized sector. Introduction Walmart India is scouting for a four-acre plot near Mumbai to set up a store for its cash-andcarry chain- ‘Best Price’. The search follows an agreement it has signed with the Maharashtra government to start 15 outlets in the state with an investment of $150 million in the next 4-5 years. Currently operating 21 stores in nine states across the country, the cash-and-carry chain expects to open 50 stores over the next 5 years. Walmart has a convoluted and disordered tale of development in India. The main challenge is the Indian government's restrictions against allowing businesses from doing what Walmart does the best- piling it large and selling it cheap. Since it cannot deploy its biggest strength- the logistics of retail, it is expanding the cash-and-carry model rather than the retail one, where the wholesale outlets can sell products to retailers, hotels and canteens and not to the consumer directly. India: Enormous Market, Monumental Challenge Although a wholesale cash-and-carry model benefits the retailers by offering great prices, this organized model is still not popular with traditional wholesalers, who dominate 95 percent of the trade in India and control the flow of agricultural produce from farms to marketplaces. As for the FMCG manufacturers, the entire “kirana” system prevalent in India is through a system of distributors and wholesalers. The challenge is compounded by a lack of good real estate, supply-chain infrastructure and a loyal customer base. It thus comes as no surprise that the only players in this business are the ones enjoying huge capital backing for a long fight. The current government has made attempts to relax the rules. The previous rules made it mandatory for foreign supermarkets to source 30% of their products from small Indian firms. Created by Team Think Tank for Corporate Buddha Competition (2017)

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Whilst this rule is still in place, the government has now given foreign firms 5 years to reach this target, thus easing the pressure. The rule which earlier permitted foreign retailers to set up stores only in cities with population of over a million, has also been overturned. However, foreign companies cannot set up multi brand retail shops, i.e. they cannot be “supermarkets”. With low per capita income, which stands at around $1,500 today, the cash-and-carry business must figure out a new way of working with Indian retailers and their customers. To understand the kirana and its customers, is the steepest challenge in India for organized retail. It is not so much about burning cash, as it is about analyzing and predicting future social trends. The traditional business is bound to be the winner as it controls everything from agricultural produce to manufactured goods. The only hope for organized retail, is for these traditional businesses to become organized by embracing technology and also coming under the fold of taxes. The unorganized segment today reaches 90% of the Indians, mainly because most of the transactions are in cash. "Eventually, if we are able to run the business at lower cost, we will pass it onto the consumers and the prices of the central commodities can come down, so it's a win-win for everyone, for the consumer, for the state, as well as for the business," said Krish Iyer, President and CEO of Walmart India, to PTI in June 2016, who was also present in the meeting that Walmart CEO Douglas McMillion had with Prime Minister Narendra Modi in the same week. He added that Walmart is eyeing a big market cap for itself in India and stands to benefit from the economic reforms, which highlight the government's intention to transform retail into a vibrant industry in the medium to long term. Operating on a similar model is the German wholesale retailer Metro Cash & Carry, which is almost more than a decade old in India now, but continues to post losses. In FY16, it reported a net loss of Rs 91 crore, compared to a loss of Rs 110.72 crore in FY15 and Rs 142.14 crore in FY14. However, FY16 sales at Rs 4,629 crore were up by 16.5% from Rs 3,973.76 crore, compared to a year ago. The Indian arm of German Metro AG currently has a registered customer base of 25 lakh, with less than half of that number shopping at least once a month at its stores. Arvind Mediratta, Managing Director, Metro Cash & Carry India, in an interview with Financial Express in 2016, said that despite the losses, the company continues to consider India as one of its most important markets. The firm is focusing on improving its supply chain infrastructure, raising quality standards and helping promote value offerings to reduce its losses.

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The Future Of Indian B2B Retail- Rosy or Bleak ? The argument that, eventually corporate retail would be highly penetrative – due to changing consumption habits of consumers – is a bygone argument. Unorganized retail continues to be the winner and will remain so for the near foreseeable future, which indicates that Indian retail is going to be a hybrid. Even then, organized retailing will only be 15-20% of the market by 2030 and will serve urban customers only. By then, the entire retail space would be more than a $1 trillion market. The over-arching question which rises is- how much of that share for the organized retail will be part of the ‘cash-and-carry’ kitty? The recent consolidations in the retail business-space, including those by e-commerce companies, show that businesses have forgone Gross Merchandise Value (GMV) as the bottom-line and are focusing on operational efficiency and profitability. There is a risk that the B2B market may not even reach the above projections. However, as uncertain as the ecosystem for B2B retail might look on the face of it, all the leading players are planning to tap-in and expand. Metro - despite its non-profitability, is on track to open 50 stores by 2020. Amazon is seeking to invest $ 515 million in a venture that would sell foods both via physical stores and online. In September 2017, it launched Amazon Business in India- which will link small-and-medium businesses (SMBs) to more than 100 million products in its portfolio. It then comes as no surprise, that the leader of the Fortune 500 -Walmart, also wants a piece of the action in India. Deliverables: 1. Learning from its failed JV with Bharti earlier and the cash-and-carry model being a capital intensive, low return model in the short-medium term, how should Walmart collaborate with both Indian vendors and customers to promote its business? With cash-and-carry retail being a B2B model where traditional practices are the preferred trade practices for vendors and retailers, what new offerings must Walmart introduce to lure its clients towards establishing a partnership? 2. The Indian government’s current policies are still not fully in favour of a cash-and-carry model where Walmart has to source its products from local vendors. This creates the need for it to rework its traditional operational practices. Also with established retail giants like Big Bazaar, D-Mart and Reliance thriving in the B2C retail space, what lessons can Walmart draw from their success for its own supply chain and procurement practices? Prepare a strategy for Walmart’s Indian expansion plans for the next 4-5 years. Created by Team Think Tank for Corporate Buddha Competition (2017)

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EXHIBIT- 1: Walmart’s India Expansion Plan At A Glance

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EXHIBIT- 2: Indian Retail Market Stats, 2016

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