General sentiment that slowdown and dip in investor sentiment won’t affect rationale for expansion.
International cash and carry chains in the retail sector want to expand through the year in India, despite the economic slowdown and dip in foreign investor confidence.
Having no foreign direct investment (FDI) restriction, these wholesale chains are allowed to sell products only to retailers, professional users, caterers, institutional buyers and other businesses, which need special licences to buy from these outlets.
Walmart, the $446-billion American retail giant, which operates cash and carry outlets in India in a 50-50 joint venture with the Bharti group, expects to open 12 to 15 wholesale outlets in 2012, against 10 in 2011. At an average cost of $6-7 million (Rs 33-38 crore) per store, excluding land and construction cost, 15 outlets would mean an investment of anything between Rs 500 crore and Rs 600 crore. With land and construction cost, total investment could double.
|CASH & CARRY INDIA MAP|
till May 2012
Even as Walmart has been waiting for the government to allow FDI in multi-brand retail, it is bullish on the India market for cash and carry outlets. It has opened two more in India this year and has a total of 17 till now.
Metro, the top German cash and carry group, which has an estimated annual revenue of euro 67 billion, is also planning to stay on the expansion path this year in India. While noting the challenging general economic conditions, a company spokesperson said, “Allocation of capex funds is to be prioritised more strongly.”
He said the Metro group had decided, therefore, “to first concentrate on like-for-like (existing stores) sales growth and to accelerate the expansion in selected countries, where we are already well established with our business model”. India is among the select countries where the German chain wants to continue to expand. As against three store launches in 2011, Metro has opened two (New Delhi and Jaipur) in the first five months of 2012. At around Rs 60-70 crore investment on each wholesale centre, a Metro spokesperson said many more outlets would be opened across the country over the next few years, but did not elaborate on the specifics.
French retail major Carrefour (annual sales worth euro 112 billion), which had launched one cash and carry outlet each in 2010 and 2011, may go for another store opening later this year, sector sources said. The company did not talk about its India plans. Carrefour, like Walmart, wants to set up operations in multi-brand retail in India and is waiting for the government to give a green signal. Its India head, Jean Noel Bironneau, had met commerce and industry minister Anand Sharma a few days before, perhaps to discuss issues related to multi-brand FDI.
UK-based Booker, a $6.5-billion cash and carry chain, has in the first five months of 2012 already surpassed last year’s store launch. This calendar year, it has opened two wholesale centres, with more planned, against just one in 2011. Zunaid Bangee, chief executive officer, Booker India, said the general global and European economic climate had not impacted the store opening plans. When asked if the company’s investment decisions would be influenced by the dip in global investor confidence in India at this point, Bangee replied, “No, this will not have an impact on our expansion plans.” The company plans to open up to 20 stores in India over the next five years. Its first outlet opened in Mumbai in 2009 and it has a total of four wholesale centres in the country.
Walmart, which had opened its first wholesale store in India in 2009, along with Bharti, dismisses the view that the global economic climate could influence its store expansion plans. “Saving people money so they can live better is at the heart of everything we do,” the spokesperson said, adding, “this is especially relevant in an economic slowdown”.
On global investors’ mood, a Bharti-Walmart spokesperson said, “The India story remains strong with the international business community.” Adding, “There is understanding and appreciation of the factors that impact policy making, particularly in India’s vibrant democracy.” Walmart is here in India for the long term, the executive added.
The Metro executive expressed similar sentiments. “We are confident in the big potential of the India market. We are on a growth path and well positioned to expand our presence in other parts of the country,” he said. The oldest international cash and carry chain in India, it opened its first outlet in the country some eight years before. Having picked up speed recently, it has a total of 11 wholesale outlets in India till now. Apart from India, Metro has launched two outlets, in both China and Kazakhstan, and one each in Poland, Russia and Vietnam this calendar year till April. “We will continue to grow in our existing markets, with a focus on Eastern Europe and Asia,” the executive said.
Cash-and-carry represents an opportunity worth around $150 billion (Rs 8.25 lakh crore) of the $500-billion (Rs 27.5 lakh crore) annual retail business in India.