When Krish Iyer took charge of Walmart India’s operations in 2013, the American giant faced a number of major challenges.
The joint venture with Bharti Group had just broken up, there were investigations into allegations of bribery against some of its executives and the future of its retail business seemed uncertain, given the stringent foreign direct investment rules governing the sector.
Four years later, though some of these concerns still remain, Iyer has led the company’s smart pivot from its traditional strength of selling directly to retail consumers to selling to small wholesale buyers in India with its chain of cash-and-carry stores.
The bets are beginning to pay off: each of Walmart’s India stores has turned profitable at the store level.
“This year, India was made a priority market for Walmart, which means we’re getting more resources, more talent. This will help in accelerating stuff, and investments in the back-end and the supply chain will happen,” Iyer, President and CEO, Walmart India, told BusinessLine .
Walmart has 20 such cash-and-carry (CC) stores in India and is expected to launch 50 stores by 2021 at an overall investment of over $500 million. The initial success has given the company the confidence to move into other formats.
This week, it launched its first fulfillment centre (FC) in Mumbai, an improvement on its cash-and-carry store model, which will hit markets much faster and focus exclusively on FMCG products and staples.
“We’re following both the CC and FC models simultaneously,” Iyer said. “We have plans in the pipeline to open another FC in Lucknow. The Mumbai store is a pilot, and if we see proof of success here, we know the model is viable. With the FC, we can open stores much faster.”
The Mumbai fulfilment centre is built on a 4-acre plot and was launched in 60 days. In comparison, a full-fledged CC store still takes about two and a half years to set up.
Iyer says all of Walmart’s India stores are profitable at the store level. The capacity utilisation at some of its stores, particularly in Punjab with Zirakpur, is at about 130 per cent.
“Of course, the head office cost won’t get covered. And we keep increasing our investments. The point is that Walmart is letting us lose money in India, and that’s a sign of confidence.”
For the 15 months ended March 2016, Walmart India posted sales of ₹3,996.8 crore. Net loss fell to ₹140.4 crore, nearly halving from the previous reporting period. The company’s latest financials haven’t been made available yet.
Pinakiranjan Mishra, Partner and Sector Leader (Consumer Products and Retail), EY, believes that the cash-and-carry model makes good business sense in India.
“A few years ago, the margins here were as good as in retail,” Mishra said. “If the foreign players can build scale the way they have abroad, the market opportunity is huge. The market is large enough for foreign and local players in cash and carry. I believe the key will be in execution and building supply chains, more than getting market share.”
Going forward, Iyer hopes that the Centre will open up non-food retail to FDI. “We are, of course, interested in food and non-food retail. But doing food retail alone does not make sense because the margins are higher in non-food retail. Besides, it’s not a level playing field when there are domestic retailers who will do food and non-food.”