Exploring divergent views on the Indian retail landscape, Mohini Bhatnagar evaluates why some well known global retailers are steering clear of all the hype and hoopla generated by the companies attempting to leverage the 'growing' retail market in India.

While the Wal-Mart, Bharti Enterprises joint venture is heard making upbeat plans of starting cash and carry operations in India by the end of the year, another global voicing different views.

Speaking at a Technopak summit in New Delhi, Swedish firm IKEA's property and establishment manager Staf Lenders said he was not impressed by the big investments happening in India in the retail sector. He added for good measure that the Indian retail market was flawed and that it is not even an 'emerging one' worth entering right now as it does give a decent return on investment.

He also focused on relaxing FDI norms and rejected any possibility of change in product and pricing strategy to suit the Indian market.

While IKEA's reasons for not wanting to invest in India may be due to pure risk aversion, it is a fact that for global retailers entering India has become a risky proposition. 

With the Left parties denouncing FDI in retail in no uncertain terms there has been no more talk on the issue in political circles for a long time. Things on this front seem unlikely to happen in the future also as the ruling UPA chairperson Sonia Gandhi, the Congress Party president is opposed to the opening up of the retail sector while the Bharatiya Janata Party (BJP), the other national level party, is supported strongly by traders and merchant establishments and may put the issue on the backburner assuming it comes to power.

Therefore, Lender's argument that, "India is not ready for big retailers yet and may be we can talk about it in 2015-16," sounds uncomfortably close to the truth. 

Even Reliance Retail, a purely Indian company, which has successfully opened stores in a number of cities, it has a token presence in India's biggest markets - Delhi and Mumbai.

And, while its largest presence is in the relatively peaceful southern states of Andhra Pradesh, Tamil Nadu and Karnataka, the company has been barred from opening outlets in UP, West Bengal and Kerala and remains under threat of vandalism in most cities.

Since 2006 when Sunil Mittal-led Bharti Enterprises announced signing of the MoU with the US-based Wal-Mart Stores for a retail joint venture, the two companies have been studying and evaluating the retail market in India to identify business opportunities together within the existing guidelines.

The Bharti Wal-Mart venture is expected to employ around 5,000 people over the next seven years. A typical facility will stand between 50,000 and 100,000 square feet and sell a wide range of fruits and vegetables, groceries and staples, stationery, footwear, clothing, consumer durables and other general merchandise items to retailers.

Since Indian laws do not permit foreign entities to set up large retail operations in India, last year the Wal-Mart - Bahrti jopint venture announced its cash-and-carry operations which allows wholesalers to sell to other shopkeepers but not directly to consumers.The joint venure will launch its first outlet by the end of 2008, and add another two or three cash-and-carry outlets in 2009.

Significantly the venture will not risk using the Wal-Mart brand name for its operations to avoid the political fallout stemming from opposition from middlemen, small retailers and most importantly politicians.

Accordingly, while Bharti would manage the front-end of the retail business, Wal-Mart would take care of the supply chain, logistics and other back-end operations, which is the best way of keeping the global retailer away from the limelight.

In the US it operates Wal-Mart discount stores, Supercentres, neighbourhood markets and Sam's Club locations, in India it has been forced to take a backseat to avoid a political backlash against its entry into India. With 2900 stores across different countries, Wal-Mart is also known for cutting out middlemen, wholesalers and offering products (from farm produce to computers and accessories) at the lowest possible price in any market that it operates in.

To force Wal-Mart to the position of a wholesaler catering to the retail traders is a gross injustice to Indian consumers.

Ironically Bharti Enterprises does not have across the board retail experience that Wal-Mart or Carrefour have. With revenues of $320 billion last year, Wal-Mart has been a retailer for 75 years and is known for running large hypermarkets and supermarkets spread over thousands of square feet.
 
Bharti had also entered into discussions with British retailer Tesco and Carrefour of France, but negotiations with these did not fructify and the two giants are still waiting for clarity on FDI in retail in India.
 
Bharti also has a joint venture with ELRo Holdings India, FieldFresh Foods, to distribute fresh  fruits and vegetables.

Yet it is a fact that Reliance, the first retailer in India to have put in place an organised supply chain for its fresh produce, sells fresh fruits and veggies at extremely competitive rates so much so that small vendors have begun sourcing fresh produce from Reliance outlets.

There have also been reports of farmers in UP and Andhra Pradesh preferring to sell mangoes to Reliance as it offers higher prices and betters terms of credit than to the traditional distributors.

Moreover, the Reliance Group is also expanding operations and has purchased land in the vicinity of residential areas in various cities for its retail stores.

To give due credit to Indian retailers, Wal-Mart may not find the going easy in India as after all it was forced to exit Germany and Korea owing to local competition. Indian retailers like Big Baazar and Vishal Megamart could well put up an extremely tough fight, as they expand their presence with large-format neighbourhood stores.

As things stand, the ones benefiting from Bharti - Wal-Mart being reduced to a cash and carry venture are the organized retailers in India. The 'kirana' stores are anyway engaged in fighting the onslaught of AV Birla Group's More, Reliance Retail, Subikhsha and Spencer's.