July 28, 2010 / 12:43 PM / 7 years ago

Wal-Mart India growth faces supply chain hurdle

NEW DELHI (Reuters) - Retail giant Wal-Mart(WMT.N), still limited by rules barring multi-brand foreign retailers in India, expects supply chain woes to make fast expansion in the country difficult, the chief of its Indian joint venture said.

India’s $450 billion retail sector is largely closed to overseas firms, with those carrying multiple brands restricted to cash-and-carry, or wholesale, outlets like the ones Wal-Mart operates in India.

Earlier this month, the government took a tentative step towards opening the organised retail sector to foreign companies by circulating a discussion paper on the issue, and Wal-Mart, the world’s biggest retailer, has said it could open hundreds of stores in India if rules are relaxed.

But in a country where at least 40 percent of produce is wasted because of inadequate storage and transportation, large investments in warehouses, refrigerated trucks and other amenities are needed.

“The larger issue in our country is supply chain,” Raj Jain, managing director and chief executive of the three-year-old Bharti Wal-Mart venture, told Reuters Insider television.

India’s retail sector is dominated by mom and pop shops, with organised retail accounting for just 6 percent of the total.

“Supplier base including the farmers, the local suppliers, even the big companies are not ready to supply to large format of organised retail in an efficient way,” he said.

Asked how that would affect Wal-Mart’s pace of expansion, Jain said: “I think significantly, and my own view is for the first five years it’s going to be very, very difficult to rapidly expand in the country.”

Foreign retailers have said they are willing to invest whatever it takes to build up the country’s supply chain, but argue that it is only a viable proposition for them if they also have access to India’s increasingly prosperous customers.

Wal-Mart’s India joint venture expects to open as many as 15 wholesale stores over the next three years.

    “We are working on it with our two stores, which we currently have on the cash-and-carry side. We will continue to work on it,” Jain said referring to the company’s wholesale stores, for which it sources about 90 percent of the goods locally, directly from farmers and manufacturers.

    “I see this as at least a decade before a supply chain of any international quality and standard will be set up in India,” he said.

    Jain said the process to open up the country’s retail sector had already started and that there is now a “more serious debate” about opening it further, especially food and grocery, where traditional small shops predominate.

    “It’s a question of ‘how long will it take to get food and grocery open and how much?',” Jain said.

    Global retail chains like Wal-Mart and Carrefour(CARR.PA) have long been frustrated in their efforts to operate in the world’s second-fastest growing major economy because of ownership restrictions.

    (Editing by Tony Munroe)

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