Carrefour vs WalMart, the Indian perspective
Wednesday, August 22, 2007
The GDP growth is more than heartening, money has effectively been trickling down in most part of the country, local retailers are investing in hypermarts and mall outlets, people have opened up to the spending lifestyle, disposable income has risen nicely and living on credit has been gaining acceptability. All these things make India not just a favorable but a hot market for these retail majors. Europe and American land has already been saturated, to survive in international arena, the retail majors will have to beat each other to gain the promising fresh ground across the world.
On the other half of the story, one thing that many in India would be waiting would be the war of Carrefour and Walmart. With government delaying the direct investment by any foreign retail chains and these players evaluating the local players (WalMart with Bharti and Carrefour with Wadia Brothers) the time has surely become the critical hinge to hang on for a while.
The plans of slow and steady growth of Carrefour has long been eroded by Walmart, since it began its european rampage, and announced its arrival with thud by acquiring Asda (WalMart doubled its international sales to more that US$25 billion at that time with the acquisition). Carrefour had replied by having a friendly bid rival Promodes at Euro 15.9b, thereby potentially creating Europe’s largest retailer with a market value of US $48 billion. Though the sentiments could have been affected by the failed attempt of Carrefour to enter American market in 1980s, still what mattered was the global pie; and it was too large to be fought by gimmicks.
Here is where Asian countries come into picture. The land has yet been riding on its own unorganized distribution network, making road tougher for these retail chains. But the largest investment - land and labor has been cheap, making it lucrative. These retail chains thrive on local sourcing, private brands and strong distribution network. The last option is yet to be seen that how these majors can exploit. Because the evading market for these majors - South East Asia, is driven by trust, mutual understanding and credit. It’s very normal for a person to tell the retailer while walking on the road to send purified water container, x kg aata and y kg sugar to his home. The price may be paid at the end of the month when he is given a list of purchases in previous month. You can’t expect that in Europe or America. Europe especially, being low on labor, is mostly a self serving model based. All this leads to development of organized format.
So when the fight is on between the two for markets they also understand how tough the path further would be. The market is held by the unorganized wholesale setups who have been effectively been driving the sales since more than century. All the major cities have a wholesale market from where the sales of area of anything between 60 to 200kms radius are operated. And mind it; it’s the wholesale and not operator, so retailers have to come by themselves over here.
This setup may be rendered low on effectiveness by these giants and that will be a trouble for a government of a democratic country. So it is yet to be seen how and when their entry is allowed. The markets across world today can be classified under five formats:
· Hypermarts
· Discount Department Stores
· Hard Discounts
· Category Killers
· Warehouse Clubs and Cash and carry
For now, the cash and carry seems to be a nice backdoor available and last week Walmart braced it in full publicity. The cash-and-carry model is being followed by the German retailer Metro AG in India which has set up two distribution centers in Bangalore and is in the process of setting up more in Hyderabad and Kolkata.Whatsoever, the time will make the fight only grimmer. Will the culture also make a difference in this acceptance is also a yet another point!
Labels: Business
posted by Jas @ 11:23 PM,
