MBA HANDBOOK-6

Giant takes a wholesale BiteCreating Brand Walmart in India

Shelving its retail FDI plans,Walmart is focusing its energies on mom-and-pop stores, small traders, hoteliers & caterers in a cash-and-carry market

pegged at $ 300 billion

Walmart Case StudyWalmart is a one-stop-shop from which Chetan sources nearly everything needed for his restaurant from the furniture & groceries to decorative pieces & cutlery

Shopping on alternate days, Chetan saves upto Rs.3 lakhs a month at the over 60,000 sq.ft Best Price owned by Walmart

Chetan Sharma

(owner of Raj Rasoi food court in Agra)

In Andhra Pradesh, every Sunday evening, Sambasivarao visits the Best Price outlet locate about 45 kms from Vijayawada. It is here that he buys the home appliances, furniture pieces, confectionary, cereals & a range of other items for his shop

Advantages to Rao;-Huge savings in transportations costs-Wide range of products

Sambasivarao

(owner of Sri

Krishna Best Sale supermar

ket)

Walmart’s journey to India

After waiting for more than 7 years for the elusive Govt.nod for Foreign Direct Investment(FDI) in retail, Walmart is now

focusing its energies on the likes of Sharma & Sambasivarao. Walmart has found its mooring in the “cash-and-carry wholesale format” where FDI upto 100% is permitted

Walmart’s target clients include;-Kirana or mom-and-pop store owners

-small traders-hoteliers-caterers

Krish Iyer who took over as President & CEO of Walmart India after the company called-off its joint venture with Bharti

Enterprises in late 2013 says- “Growth in India is driven by domestic private consumption & not exports. With the current

business model of cash-and-carry where Walmart sells to business members there is a great potential with the fairly low

penetration of modern retail

India-A growing market for retail

According to Industry estimates, by 2020-the mom-and-pop-store business is expected to grow by $800 billion of

which $140 billon will be in India

Krish Iyer had to virtually re-build Walmart India after the company was involved in a lobbying controversy followed by massive

staff exodus in 2012-13.This was challenging but Walmart needed a focused approach. Cash-and-Carry was the logical

choice

-Walmart adopts a hand-holding strategy for small store owners who buy products from Walmart.

Ex: Walmart sales executives help store owners plan the store layout, product category sequencing, training store

employees on standards for display & audit-Also Walmart’s Business Development Associates visits shops & hotels to sign-up new members. Members are

enrolled within a 20/40 Km radius of each outlet to ensure that customers do not have to spend more than

30-40 minutes in commuting

Cost Advantage to shop owners & Walmart strategy on pricing

The biggest draw at Walmart is the availability of fresh fruits & vegetables at the most reasonable price. The prices are atleast 15-35% lower than market rates

Moreover, Walmart have discounts & periodic promotional offers. Overall shop owners after shopping save Rs.2.5 lakh a month

What works for Walmart is the Direct-to-Store Model. All the suppliers with whom Walmart works with such as Nestle, Coke etc supply directly to Walmart outlets

Walmart also undertakes ‘joint business planning’ to make sure that the fill rate(inventory’s ability to meet demand)of the particular product is good

How is Walmart able to offer this pricing advantage?- Walmart heavily invests & maintans a robust “supply-chain”Apart from an annual planning exercise, a Walmart Team

interacts regularly with the companies to iron-out issues on a real-time issues

-Walmart’s software-Retail Link, provide suppliers with the information they require around replenishment

Cost Advantage to shop owners & Walmart strategy on pricing

-To strengthen Walmart’s supply chain, it is moving to procure directly from farmers in all the States where it operatesEx: Walmart stocks; Apples from Himachal Pradesh-Onion from Nashik-Sweet Lime from Telangana-Vegetables from Punjab & Uttar Pradesh(Walmart source directly from farmers to get fresh produce at the right price so that their members can pass-on the savings to the end-customers)

-In Hapur, Lucknow, Telangana & in some areas of Maharashtra, Walmart is working with irrigation companies & introducing best agricultural practices to farmers.-Farmers are free to sell to other regions & retailers & Walmart does not enter into any exclusive tie-ups with them

-Walmart’s store expansion in India has been slow. Only 21 stores across India-Walmart requires about 4 acres to build a 50,000 to 60,000 –sq.ft store. This requires lot of time-Acquiring real-estate is a time consuming activity in terms of legal requirements & due diligence

Battle for every storeWalmart has a model

that works but not necessarily everywhere. It requires a certain type of real-estate which is not

easily available in metros & big cities.This is why the

giant is focusing on Tier-2 & Tier-3 cities

The penetration of mom-and-pop-shops &

traditional stores continues to be higher in Tier-2 & 3 cities. They are attractive opportunities & makes

sense-Walmart aims to add at

least 50 stores to its portfolio by 2020

By understanding the preferences & basing the decisions on the

customer data, Walmart is able to meet the

specific needs of buyers But can a new player like Walmart compete

effectively with the likes of Metro-Cash & Carry which

has been in India since 2003 or a local giant like

Reliance. Walmart believes yes because it has its own

membership data & Walmart knows what a member would want in

Punjab or UP or Telangana

-Walmart believes that “Retail is a very local

business” & is dependent on how well you address

the customer segment in a given geography.

-Just being a large or established retailer

nationally or globally is no guarantee for success. It all

comes down to fighting each store battle independently

Journey hasn’t been Profitable for India’s Top

Travel portals

Loss-making airline industry whose tickets they sell

A highly unorganized hotel industry

Limited internet

penetration until recently

Sudden surge in mobile internet leading to rapid

shifts in business models & additional

investment

The portals started with airline

ticketing as their core but in the last few years shifted majorly to hotel

bookings & packages

Issues that travel portals face

Poor Show

• Cleartrip posted a net loss of Rs.29 Cr for the year ended March 31,2015

• MakeMyTrip said its net losses for the fiscal second quarter through September more than doubled to Rs.80 Cr

• Cox & Kings, on the other hand posted a net profit of Rs.40 Cr in the July-September quarter

Thomas Cook has posted a net profit of Rs.6.7 Cr in the July-September quarter

•Neither Yatra nor Cleartrip has posted an annual net profit yet• MakeMyTrip last reported an annual net profit in fiscal 2012

Travel Portals that have outpaced other competitors

•Cox & Kings,Thomas Cook & Riya Travels have been profitable because;-the packages they sell offer fatter margins-Due to their wider market reach

The travel portals started with airline ticketing as their core business but in the last few

have shifted a large part of the business to hotel bookings &

packagesFor instance: The net revenue

mix for MakeMyTrip in the second quarter of FY 2016

was 71% from non-air businesses & 29% from air

business, a complete flip from a few years earlier

Online hotel booking market has just

opened-up due to smart phone

penetration & availability of better

bandwidth

-According to Yatra.com,the online booking in these sectors was still low. Internet in India took more than a decade to

move from 10 million users to 100 million & three years from 100 to 200 million.

-It took only a year to move from 300 million to 400

million users pushed to a large extent by the smart phone boom & mobile internet

Online travel portal-A Brief description

Humble Mobile’s journey to be the greatest enabler of the century

(India is now the world’s 2nd largest telecom market by subscriber base)

During mid 1990’s Mobile phones were a luxuryCalls were priced at Rs.16 a minuteMobile devices were available for anything<than Rs.45,000

After the telecom sector was opened upto private & foreign players, its contribution to GDP increased from 0.7% in the 1980’s to 5.7% in 2008(National Council of Applied Economic Research)

Telephone Connections(fixed line)grew at a leisurely pace from 9,80,000 in 1971 to 5.07 million in 1991Telephone subscriber base has expanded at a compound annual rate of 19.22% from 200 million in 2006-07 to 1 Billion in 2014-15

Indian Telecom Journey

As India opened up its economy in 1991 foreign players invested billions of dollars in setting-up mobile networks

National Telecom Policy(NTP-1994)This policy allowed foreign companies to hold upto 49% stake in

telecom companiesNational Telecom Policy(NTP-1991)This policy allowed the industry to move from a Fixed License

Fee structure to a revenue-share mechanism & cost-oriented telecom rates

24*7 connectivityFrom being a communication device, the mobile phone has

metamorphosed into an enabler in the digital worldSmart phones & Tablets are delivering mass amounts of

digital content to the fingertips of consumers

Setting of Telecom Regulatory Authority of India(TRAI)This body was set-up in 1997 to remove govt .control over policy-making & rates

Also the foreign players were allowed to increase their stake in Indian telcos to 74%Launch of 4G Services

Roughly 17 years after the first call using a cellular network was made from Kolkata, the city saw the launch of

the fourth-generation mobility services in 2012

What changed the Telecom Sector in India

Mobile as a mini BankThe deepest impact of new-age

mobility has been felt by the Financial Services sector

A phone is now being used to deliver financial services to people

who do not even have bank accounts

Mobile Banking as emerged as one of the most innovative

products in the financial services sector

Some quick facts of Telephone industryBefore

liberalization telecom industry was the domain of the Govt &

telephone connections were more of a status

symbol than utility

India’s teledensity, i.e, the number of mobile connections per 100 people has improved

from 2.33 in 1999 to 80 in 2015

Today, the penetration of mobile telephony is 45% in rural & 55% in urban

India

Wireless segment accounts for

97.36% of total telephone

subscriptions

Nowadays, governments are also reaching out to their citizens using mobile devices as an efficient

channel

Today, India is the world’s 2nd largest telecom market by

subscriber base(1 Billion in 2014-15)

India has also emerged as the 2nd largest country in

terms of internet subscribers. India had

267.39 million internet subscribers

as of December 2014 & a large part of these

customers accessed the internet on their wireless

mobile devices

Anup George RebelloAsst.Manager

The Catholic Syrian Bank Ltd(anuprebello.6@gmail.com)

http://www.slideshare.net/anuppresentations