Wal-Mart Stores Inc.

(WMT), blocked from opening retail outlets in India, is reaching consumers in the worlds second second-most populous nation by supplying their stores and restaurants. The worlds biggest retailer and rivals including Carrefour SA (CA) and Metro AG cant sell more than one brand under one roof in India. Theyre allowed to set up wholesale outlets and Wal-Marts joint venture with billionaire Sunil Mittals Bharti Enterprises Pvt. plans to triple its locations this year. Setting up such businesses will help overseas companies prepare for when India relaxes its rules on retailing, which may happen by April, according to Junior Trade Minister Jyotiraditya Scindia. Retail sales in Asias third-largest economy may grow to $785 billion in 2015 from $396 billion in 2011 if the restrictions are eased next year, according to a report by Business Monitor International. Were filling a gap in the country which has existed for several years now, Raj Jain, chief executive officer of Bharti Walmart, said in an interview. Wholesaling in India could be gigantic, and the venture will stay in the business even if retailing rules are relaxed, he said. Shoppers at a Wal-Mart store in Zirakpur in Indias northern Punjab state said theyre drawn by low prices and convenience. They can only enter the store by showing ID cards that require documents proving they own a store or a restaurant.

Aisles for Forklifts

Pankaj Goel, 36, said he makes a 10-kilometer (six-mile) trip to the store daily to buy supplies for his restaurant, Food Max. I find all the supplies I need here, so I can do all my shopping in one place, he said as he piled up cucumbers, mushrooms and lemons into two carts being pushed by store staff. Its cheaper than buying from the market. The 55,000-square-foot Wal-Mart in Zirakpur resembles a warehouse, with high ceilings and aisles wide enough to accommodate forklifts. Labels list wholesale and retail prices, as well as the difference, to show customers how much they can make when they sell the products on to consumers. The Zirakpur outlet adds 15 to 20 more every day, Yogesh Kumar, its general manager, said. Bharti Walmart already has as many as 180,000 customers in India, according to Jain.

Larger Than Anticipated

Bharti Walmart opened its first store in India in 2009. It has six wholesale outlets and plans to increase that to 18 by the end of the year, spending as much as $75 million on the expansion. As many as 12 more outlets may be added in 2012. Were accelerating our program because we think we can get larger scale here than we had originally anticipated, Jain said. Even if retail opens, I cannot see us not doing our wholesale business because the opportunity is huge. For Wal-Mart and Carrefour, the worlds two biggest retailers, running wholesale operations in the South Asian nation of 1.2 billion people helps them develop supply chains and gain a foothold in the country. India was the third-most attractive retail market among the thirty largest emerging markets, U.S. consulting group AT Kearney said in a June report. Small, neighborhood shops that sell a limited range of items control about 70 to 80 percent of Indias retail industry, according to analysts, including KPMGs Anand Ramanathan.

Reliance Retail
Wholesale stores boost product distribution in remote areas, said Ramanathan, whos based in Bangalore. About 5 million stores are outside the direct coverage of large consumer-goods players such as Hindustan Unilever Ltd., Indias biggest maker of soap and detergent, he said. Paris-based Carrefour set up its first India wholesale store in December. Reliance Retail, a subsidiary of Indias Reliance Industries Ltd. (RIL), will open wholesale stores soon, billionaire Chairman Mukesh Ambani said June 3. Future Group, the holding company for Pantaloon Retail India Ltd. (PF), Indias largest publicly traded retailer, operates 169 Food Bazaar Stores in India. The business of supplying smaller stores has very big potential, especially outside Indias urban centers, Saloni Nangia, a senior vice president at Technopak Advisors Pvt., said in an interview. Companies such as Bharti Walmart and Carrefour have also made a good start at helping farmers gain access to better technology and earn more money, said Scindia, the junior trade minister. Mohan Shukla, a spokesman for Carrefour in India, declined to comment on the companys sourcing operations.

Food Inflation
As much as 30 percent of the products sold in Bharti Walmarts stores are regional brands and products, Jain said.

Bharti Walmart buys fresh produce directly from about 1,200 farmers in Punjab and helps them improve their yield through better farming practices, Jain said. A discussion paper prepared by the Department of Industrial Policy and Promotion said foreign direct investment in multi- brand retail would help develop infrastructure and allow farmers to earn more. Overseas companies are allowed 51 percent holdings in single-brand shops. Marks & Spencer Group Plc (MKS), which sells clothes and food under its brand, has a venture with Reliance Industries. A government panel on May 27 also recommended opening multi-brand retail to foreign investment, because it might help moderate food-price inflation, which was 16 percent last year.

Growth Engine
Wal-Mart, Carrefour and Tesco Plc (TSCO) have said they can reduce consumer food prices in India by removing intermediaries. Wal-Mart, the worlds biggest listed company by revenue, made 26 percent of its $421.8 billion in sales last year outside the U.S. Its international sales expanded 84 percent to $109 billion over the past five years, more than triple the rate of growth in its home market, according to data compiled by Bloomberg. Wal- Marts overseas locations reached 4,612 in the fiscal year ended January, exceeding those in the U.S. for the first time, according to the data. Sales at U.S. Wal-Mart stores open more than a year dropped 1.1 percent in the fiscal first quarter, the eighth decline in a row. The international division continues to be the growth engine for the company with 11.5 percent sales growth, Wal- Mart said.

Outdated Rules
Wal-Mart has intensive plans to grow in India, where its annual revenue is less than $1 billion, compared with $7.5 billion for China, Scott Price, chief executive officer for Asia, said March 30. Indias retailing rules, meant to protect small shop owners, are outdated, Technopak Advisors Nangia said. Consumption in India is growing at such a fast pace, nobodys actually getting impacted in terms of loss of business, Nangia said. Smaller, unorganized retailers might need to tweak their business model slightly to adapt to the change, but theres an opportunity for all forms and sizes of business to be set up.

Wal-Mart, with about 9,000 stores in 15 countries, isnt a threat to the Indian way of shopping, Jain said. The mom-and-pop stores will stay forever, even in urban India, he said. And whos going to feed them? They will buy from the business-to-business channels, so that will continue as an opportunity