The Hindu Business Line : Bharti plumps for Wal-Mart

HERE WE ARE: Mr Sunil Bharti Mittal, Chairman and Managing Director, Bharti Enterprises, at the plenary session of the India Economic Summit organised by World Economic Forum on Monday. - Rajeev Bhatt

New Delhi , Nov. 27

Bharti Enterprises on Monday announced that it had signed an MoU with Wal-Mart Stores Inc, officially naming the world's largest retail chain its partner for the telecom major's foray into the retail segment, after months of speculation.

"Ours will be a joint venture of equal partnership with Wal-Mart and we will function in the cash and carry format," said Mr Sunil Bharti Mittal, Chairman and Group Managing Director, Bharti Enterprises. Wal-Mart will be an equal partner in the back-end supply arena of the retail venture in terms of logistics and technological support, while Bharti will be Wal-Mart's franchisee and wholly own the front-end system, he added.

Entering retail sector

Explaining reasons to enter the $300-billion domestic retail market through the cash and carry mode, Mr Mittal said, "India is yet to fully open up the retail sector but allows 51 per cent foreign investment in single-brand retail with prior government permission. Foreign direct investment is also allowed in the wholesale retailing category."

About investments, he said that since the company planned to roll out several hundred stores beginning August 15, 2007, the investments would be big. He, however, refused to divulge the exact amount. The agreement, Mr Mittal said, "allows the two companies to study and evaluate the retail market in India and identify business opportunities together within the existing guidelines." Indications are that Mr Rajan Mittal, Joint Managing Director of the Bharti group, will head the venture.

Meanwhile, Mr Mukesh Ambani, Chairman, Reliance Industries, whose retail initiative, Reliance Fresh, recently marked its debut in Hyderabad, welcomed the partnership and said that it held no danger to Reliance's Rs 25,000-crore retail plans. "The Indian retail sector has enough place for at least six-eight large players in the category," he said.

Positive effect

Reacting to the news of the tie-up, Mr Arvind Singhal of retail consultancy Technopak said that it was anticipated by the industry. "The retail scene in India will change in a positive way." On the future of kirana stores, Mr Singhal felt that there was no big threat to them even when the large players established themselves.

According to Technopak estimates, there will also be a 15 per cent rise in kirana shops in the next five years, despite a reduction of three lakh to four lakh stores in case of a worst-case scenario. "In the larger picture this is a smaller number and some of them may change their businesses or become franchisees. Consumption is increasing and given India's geography the future of small stores is not bleak at all,'" he said.

According to Mr Mazyer Kotwal, Senior Manager, Advisory Services, KPMG, "Wal-Mart will have to look at India differently. In India, none of the formats are of the size that Wal-Mart has. It would have to adopt a different strategy for the Indian market. In the case of Bharti, it knows the Indian landscape and understands the demographics in this country and also where to get the real estate for the business. Having sold prepaid cards, it will have some idea about how to sell other products. But, both the partners are likely to have a say in the business and Bharti will certainly not remain a silent investor since it has domain knowledge about the country."

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