Welcome to India — We are like that only!

The Hindu Business Line has published my article about the Bharti-Walmart's Cash & Carry store opening.

"When Sam Walton opened his first store all those years ago, he had the luxury of being a pioneer and could afford to experiment, make mistakes and perfect the model — without being under the public glare. However, the first store of Bharti Wal- Mart cannot afford this luxury. Apart from being in retail, it is a joint venture with a leading Indian and US corporate. Its every move will be watched and commented upon, second-guessed and debated. A couple of thoughts came to my mind while reading about the opening of the first store."

The article's URL is -

- Welcome to India - We are like that only!

Cash and Carry; Is this format the dark horse to pip the post?

India is a land of traders. And also small businesses. As also eateries.

That shows that the 3 main customer groups that a cash & carry store targets exists and exists in large enough numbers. But is that enough?

Let’s examine eateries first. Most eateries serve the Indian staple of Iddly, Dosa, Chapati, Puri or Poha for breakfast and meals for lunch or dinner. These are all made fresh and offer limited scope for mass production either in a heat-&-serve or ready-to-eat manner. To some extent batter or dough for these items can be mass produced and sold. However, how much of a value add it would be vs incremental cost is a matter of debate. There exists a niche in the HoReCa segment. The large hotels and specialty restaurants might find value in certain offerings like imported food, wine, liquor, etc. Is that enough to sustain an entry strategy into a country like India? No!

Small businesses thrive on network and connections, not only for business but also for their purchases. They might perceive value in a cash & carry offering and patronize the same. However, they are not the focus from an international perspective. So, when international operators start cash & carry stores, they would not be deciding on the ranging strategy basis this segment.

Last but not the least is the great Indian trader/ retailer. Approximately 12 million of them, of which almost 2/3rd is in rural markets. India also boasts of some of the most intensive distribution systems by companies like ITC, HLL, etc. and yet almost 1/3rd of the retail outlets are not serviced by this system. They manage their supply chain through the wholesale and semi-wholesale markets depending upon their size of operations.

My guess is that these retailers would be the secret behind the success of cash & carry stores in India. Subject to the following ground level realities –

Access - The cash & carry store has to be in the outskirts to leverage lower land costs. Public transportation is not one of the strong points of most Indian cities. However, the existing wholesale markets are usually situated near the public transport hub. How can the trader come to the cash & carry store, with minimal effort and cost?

Assortment - Small semi-urban and up country traders are regular visitors to any city’s wholesale market. Their ranging would be different and predominantly include Beedies, coir ropes, etc. Would cash & carry sell beedies and coir ropes?

Price/ promotion – The wholesalers are amongst the most networked in India. They leverage trade schemes and offers across states to ensure very fast turn around of stock at minimal margins. Cash & carry stores need to be extra responsive with regards to pricing and promotions. For the trader customer, his loyalty follows the next 0.1% extra margin he might get!

Yet, in spite of these constraints, there exists a chance that Cash & Carry might end up pipping the post in the first round of corporatization of Indian retail.

Cash and Carry; What is this?

Cash and Carry is a format type which is supposed to operate in the wholesale and semi-wholesale space. The stores would be very similar to hypermarkets, except for the pricing and certain range of products. Typically benchmarked with the wholesale markets, these stores would offer competitive prices on bulk purchases as also run promotions. Typically, the smaller family run businesses like mom & pop stores, local café’s, etc., patronize these stores. The customers require a membership card to purchase which is usually given only to businesses. Of course, there are end consumer sales which are supposed to be for the personal use of such business owners/ operators.

Typically such stores focus on 3 broad types of customers.

• HoReCa – Which is an acronym for Hotels, Restaurants and Café/ Caterers /Canteens
• Traders – All the stand alone stores
• Other Business – Typically small and medium enterprises who would require things for their pantry and office supplies.
  

Internationally the HoReCa customers are the primary target audience for any cash & carry store. These stores sell a wide range of heat-&-serve as also semi cooked preparations which are picked up by the HoReCa customers for their businesses. Apart from being high margin products these create high levels of loyalty because of the differentiated range that be offered. Given the high incidence of eating out by individuals abroad, this is a very lucrative and fast turn around business segment.

With the spate of Cash & Carry plans being announced largely driven by the FDI cap in India, will this strategy work in India? Would these stores succeed where other corporate retail formats have floundered?