Build it and they will do it? Retailers’ India dilemma

* India’s supply chain a big obstacle for global retailers

* Benefits outweigh disadvantages – analysts

* Retail sector needs to be opened up – retailers

By Rina Chandran

SIRHIND, India, May 21 (BestGrowthStock) – Lush green fields greet
visitors to the agricultural heartland in India’s northwest,
some dotted with tall bundles of paddy covered with black
tarpaulin, exposed to the sun, the occasional thundershower and

A couple of hours away, workers wearing green hair nets and
aprons clean and sort peas, tomatoes and potatoes in a
10,000-sq.ft. facility leased by Wal-Mart Stores (WMT.N: ), which
ships vegetables and fruits to 28 supermarkets and a Wal-Mart
wholesale store within hours of being picked in the fields.

India’s woefully inadequate storage and processing
facilities are in sharp focus as the country battles high food
inflation, and with rising chatter about opening up retail to
foreign firms such as Wal-Mart, Tesco (TSCO.L: ) and Carrefour
(CARR.PA: ) which have the resources and knowledge to build a
supply chain.

Waste due to poor post-harvest management, including lack
of storage, is estimated at nearly 40 percent of total output
in India, costing about 500 billion rupees ($11 billion) a

But it is a tough task, given the poor infrastructure, vast
regional differences and laws limiting foreign firms to
cash-and-carry wholesale outlets and franchise tie-ups with
local partners in the $450 billion retail market.

“The challenge is humongous: It is not just about making an
investment. It’s also about dealing with the government and
farmers,” said Arvind Singhal, chairman of Technopak Advisors.

“Even with all the money in the world it can take years —
maybe 8-10 years for the kind of back-end you need,” he said.

Retailers, who see India as a crucial growth market to help
offset sluggish growth in western markets, say that building
the back-end is not enough.

“The supply chain is one of the big challenges,” Raj Jain,
chief of Wal-Mart India, told Reuters in a recent interview.

“We are willing to invest whatever it takes in the supply
chain, the back-end. But that in itself won’t deliver all the
efficiencies,” he said, arguing for fully opening up the

Euromonitor International forecasts grocery retailing in
India will grow at about 17 percent annually between 2009 and
2014, putting it among the fastest growing markets in the


For full Wal-Mart interview: [ID:nBMA007508]

For a FACTBOX on Indian retail: [ID:nSGE64K07X]



Even with the deep pockets of the world’s top retailer,
India is a tough market to crack, with tiny farms, antiquated
processes, and differential policies and taxes in every state.

In the village of Haider Nagar in Punjab state, where
Wal-Mart sources vegetables such as cauliflower and gourd, the
retailer built toilets to prevent soil contamination, and
teaches farmers about transplanting and nutrient management and
the use of low-cost innovations to get a higher, better yield.

Every farmer must keep a book detailing every stage of the
process so the life-cycle can be traced and checks maintained.

Wal-Mart sends its trucks everyday to pack freshly picked
vegetables and fruits in plastic cases and deliver them at the
processing centre in Sirhind, about 50 km away, which handles
some 20 tons of produce daily.

The vegetables and fruits are delivered at supermarkets of
venture partner Bharti Retail and the Wal-Mart cash-and-carry
wholesale store in Chandigarh city, a couple of hours away.

Wal-Mart sources about 35-40 percent of its produce
directly from some 130 small and marginal farmers nearby, Jain

“Building stores is the easiest thing to do. Keeping them
stocked is the challenge,” he said.

“Maintaining quality and making sure commitments are kept
is tough. We have to win the confidence of the farmers,” he

That thought is echoed by rival Carrefour, the world’s No.
2 retailer, which has toured the length and breadth of the
country to secure supplies of bananas from Gujarat and onions
from Nashik, and trained farmers on improving quality of

“There are many, many layers, with commission agents,
wholesale markets, distribution agents which increase time to
market and costs,” said Yannick Douville, a Carrefour director.

“India has everything, but you need to be smart, you need
to work closely with the farmers to get what you want,” he said
at an event to set up greenhouses in Palla village near Delhi.

The government has unveiled concessional duties and tax
exemptions for refrigeration units and allowed external
commercial borrowings for cold storage facilities.
But it will take more to encourage investment.
“Unless there is a big front-end no one’s going to invest
billions of dollars in a cold chain or supply chain just to
sell to some mom-and-pop stores,” said Technopak’s Singhal.

Still, the size and growth potential are too big to ignore.

“It is the size of the opportunity that will keep retailers
like Wal-Mart, Tesco and Carrefour interested, despite the hazy
legal structure,” said Jon Wright at Euromonitor International.

“Ultimately, foreign retailers will have to work out
whether or not the lack of clear legislation surrounding market
entry and operation within India is worth putting up with in
the short term, given the long-term opportunities that exist,”
he said.

Stock Investing

(Editing by Dhara Ranasinghe)

Build it and they will do it? Retailers’ India dilemma