‘Pri­vate La­bels to be Big Dif­fer­en­tia­tor’

The Economic Times - - Econ­omy: Macro, Mi­cro & More -

“100% FDI in food mar­ket­ing will pro­vide bet­ter re­al­i­sa­tion to farm­ers and bring down prices of es­sen­tial com­modi­ties,” said the In­dia head of Wal­mart, which so far does not sell di­rectly to con­sumers in In­dia. It op­er­ates 21 cash-and-carry stores, with small re­tail­ers and busi­nesses be­ing its main cus­tomers. The re­tailer plans to open an­other 50 such out­lets in the next three years. The com­pany sources its own brands — Mem­bers Mark and Right Buy — from within the coun­try, some­thing that sits well with the ‘Make in In­dia’ ini­tia­tive. “Pri­vate la­bel will be a huge dif­fer­en­tia­tor in terms of bring­ing store foot­falls. They are be­ing made in In­dia and ben­e­fit cus­tomers in terms of lower prices and bet­ter qual­ity,” Iyer said, adding pri­vate la­bels will have an im­por­tant role to play in food re­tail.

In-house brands ac­count for 20-30% of sales and nearly half the prof­its of most re­tail­ers. With nearly 60% of this com­ing from food alone, many In­dian re­tail­ers are now present in over a dozen food and pack­aged com­mod­ity prod­uct seg­ments.

The De­part­ment of In­dus­trial Pol­icy & Pro­mo­tion has moved a Cabi­net note and in­dus­try of­fi­cials be­lieve that fi­nal rules will be ap­proved in 4-8 weeks. They are hop­ing that be­sides brick-and-mor­tar stores, the gov­ern­ment will al­low on­line re­tail­ing of food prod­ucts and will also ex­pand the def­i­ni­tion of food to in­clude gro­cery.

Iyer, who joined the In­dian unit of the world’s largest re­tailer two years ago, said food items along with home and per­sonal care prod­ucts would make the model more vi­able.

Wal­mart had en­tered In­dia a decade ago in a 50:50 cash-and­carry JV with the Bharti Group. This foray was seen as a first step by the US re­tailer to­wards even­tu­ally open­ing its own stores to sell di­rectly to con­sumers, once gov­ern­ment pol­icy was suit­ably amended. But the move to open up the re­tail sec­tor to for­eign in­vest­ments got mired in po­lit­i­cal con­tro­versy. While the United Pro­gres­sive Al­liance regime even­tu­ally al- lowed 51% FDI in the sec­tor, Bharatiya Janata Party has so far been op­posed to al­low­ing for­eign­ers to open multi-brand re­tail stores in the coun­try.

The move to al­low for­eign in­vest­ment in food re­tail rep­re­sents the first pos­si­ble thaw in BJP’s po­si­tion. In­dus­try ex­perts say for­eign com­pa­nies such as Wal­mart would be in­ter­ested in open­ing stores that are100% owned by them.

“Re­tail is a lo­cal busi­ness and it won’t work with­out lo­cal lead­er­ship or by fol­low­ing global tem­plate. But given Wal­mart’s his­tory, they would want to en­ter re­tail­ing alone as it will give them con­fi­dence on the ex­pan­sion strat­egy as well as proper con­trol,” said De­vang­shu Dutta, chief ex­ec­u­tive at re­tail con­sul­tancy Third Eye­sight. “Even if FDI is al­lowed com­pletely, the caveats or rid­ers will mostly sup­port lo­cal busi­ness.”

Mor­gan Stan­ley ex­pects In­dia’s food and gro­cery seg­ment to be­come the fastest-grow­ing cat­e­gory, ex­pand­ing at a com­pounded an­nual rate of 141% by 2020 and con­tribut­ing $15 bil­lion, or 12.5%, of over­all re­tail sales.

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