‘Private Labels to be Big Differentiator’
“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.