Earlier this week, Wal-Mart, the world’s largest retailer, said that it planned to improve its second quarter sales by offering shoppers irresistible bargains. For the last quarter, Wal-Mart reported flat earnings of $.77 and said it expected to deliver a range of $.83 to $.88 in the current period. Same-store sales for this quarter are expected to be between flat and up 3%. Wal-Mart may have an uphill fight to post strong second quarter earnings. Recent employment numbers and shrinking access to credit will hurt retail sales, although Wal-Mart probably has its share of people who pay cash.

According to Reuters, “Treasurer Charles Holley said Wal-Mart has planned a number of merchandising initiatives to appeal to cash-strapped shoppers, including its dollar program.” The theory behind the promotion is sound. Most stores could not bring in a lot of revenue selling items at $1 a piece, nor could most restaurants, but Wal-Mart and McDonald’s have such significant scale and customer bases that getting an even slight increase in discretionary spending from tens of millions of people could make the difference between a mediocre quarter and a good one.

Wal-Mart and McDonald’s are often criticized for selling “cheap” food and merchandise and treating their employees poorly by paying them very modest sums. There may be some truth in both charges but that true comes with another side to it. Many people who eat at McDonald’s and shop at Wal-Mart are from the lower economic classes. McDonald’s and Wal-Mart do not exploit that by selling these people junk. George Soros may not want to wear shoes from Wal-Mart and eat McDonald’s hamburgers but that does not mean that both establishments have not helped feed and clothe people who might otherwise struggle.

Workers at McDonald’s and Wal-Mart are not paid well. Waiting on people in a big-box retail outfit or cooking and serving fast food will never pay well. The jobs don’t require any special skills and so they do not come with a premium wage. Wal-Mart does employ 2 million people, which is a lot of individuals to keep on a payroll during a recession. McDonald’s has 400,000. Neither place has announced significant layoffs and neither is likely to. (Read: “The Burger That Conquered the Country.”)

Charging people a dollar for a meal or for some modest item off a retail shelf may seem like a gimmick to pick up a penny a share for the next quarter. It is a good deal more than that. When a dollar is all that someone can spend, that person doesn’t care if his purchase increases the company’s earnings.

But Indian consumers won’t be able to partake of Wal-Mart’s everyday low prices. India’s restrictive commercial laws prohibit most foreign companies from setting up shop to compete with domestic retailers. So Wal-Mart’s debut outlet, which will open in the city of Amritsar in northern India later this month, is a wholesale-only operation that will sell mainly to vegetable vendors, hospitals, hotels, restaurants and other companies. The Amritsar outlet won’t even carry the familiar Wal-Mart brand. To deflect the attention of politicians and activists who oppose the entry of foreign multi-brand retailers, the Little Rock, Ark., company has named its Indian outlets BestPrice Modern Wholesale.

Despite the stealth approach, industry experts expect Wal-Mart, known for squeezing efficiencies out of suppliers and supply chains, to have an impact on India’s $375 billion retail market, which is dominated by mom-and-pop businesses and outmoded distribution networks. “We can learn the science of retailing, how to build scale and efficiencies,” says Kishore Biyani, chairman of Pantaloon Retail, India’s largest homegrown retailer with 114 hypermarkets.

The world’s largest retailer isn’t new to India. For the past decade, the country has been an important Wal-Mart supplier of textiles, apparel, home products and jewelry. But in anticipation of its India launch, Wal-Mart for the last three years has been developing a network of suppliers to stock its stores with fresh produce and staples like lentils, wheat and rice — all with an appreciation for variations in local cultures and tastes. “India is not a homogenous market, so ours is not a cookie-cutter approach from the U.S.,” says Raj Jain, president of Wal-Mart India.

Although it is restricted to wholesale operations in its wholly owned stores, Wal-Mart has a small retail presence in India through a fledgling joint venture with New Delhi-based Bharti Enterprises. The U.S. company provides back-end support for Bharti’s chain of 25 Easy Day grocery stores that opened last year.

Although other foreign hypermarket chains are entering the country — British retail group Tesco has a joint venture with India’s giant Tata conglomerate, while France’s Carrefour is said to be in talks with Reliance — Jain says Wal-Mart is in no hurry to unfurl the Wal-Mart flag nationally. “The easiest thing is to roll out stores, but the most difficult is to sustain and feed them,” he says.

Indeed, Indian mass-merchandisers over the last several years expanded frenetically, trying to get a jump on foreign chains should Indian politicians eventually decide to open up the market to direct competition from overseas. Reliance Industries built 940 stores across the country in 18 months. Aditya Birla group has opened 548 stores since 2007. Today, with India’s economy slowing and with losses piling up, the domestic retailers have shut some outlets and laid off employees, partly because of difficulties in keeping large chains supplied with goods. “When you start opening stores and then work backwards, even we get scared,” says Mahadeo Pawar, a vegetable grower from Karjat, 31 miles (50 kms) north of Mumbai.

Caution in India may be a watchword considering the global recession and Wal-Mart’s blemished track record overseas. In 2006, the company pulled out of Germany and South Korea in the face of stiff competition and poor sales. Still, Wal-Mart has been weathering the economic crisis better than most. The company on May 14 announced it earned $3.02 billion in the three months ended April 30, about equal to the profit it made in the same period in 2008. Revenue fell 0.6% to $93.47 billion from $94.04 billion a year earlier. Highlighting the growing importance of markets such as India, nearly one-fourth of Wal-Mart’s sales for the quarter — 22.7% — came from its international division.

This custom online toolset, developed by Colchester, Vt.-based MyWebGrocer, will include full online grocery shopping, Web hosting, recipes, interactive circulars, and e-mail marketing applications. United will also join MyWebGrocer’s national Advertising Network to expand its capabilities for creating advertisements that display grocery specials, new products and sale items.

“Our consumers are demanding a more rich online shopping experience, and MyWebGrocer is uniquely qualified to help us stay ahead of consumer demands,” said Randy Crimmins, VP of marketing for United. “Their suite of tools and services is the most robust in the industry and will allow us to provide a fully integrated experience for our consumers across our entire Web site.”

Lubbock, Texas-based United operates 50 stores under three formats: United Supermarkets, Market Street and Amigos United.

“We know our customers are having a hard time making ends meet,” noted Stater Bros. chairman and CEO Jack H. Brown. “That is why we’re offering even lower prices to help the families we are privileged to serve make their food dollars go even further.”

To get the word out about their lower prices, Stater Bros. has launched an advertising campaign, “Lowering Prices Every Day … To Help You Save On What You Pay,” which will be featured in the company’s weekly circulars, in TV and radio ads, and throughout the stores.

The largest privately owned supermarket chain in Southern California, San Bernardino-based Stater Bros. operates 166 supermarkets and employs over 19,000 associates.

Vivacity will be housing, ‘Hyper City’ and ‘Shoppers’ Stop,’ as its anchor tenants. The two format retailers belonging to K Raheja group have leased an area of 85,000 sq.ft and 65, 000 sq ft respectively spread across the ground floor and the first floor. In one of its earlier developments, Sheth developers also announced its tie up with Cinepolis to set up fourteen screen megaplex with a facility to showcase over 70 shows on a single day with a seating capacity of 2,400 people.

Speaking about the 2 large anchors coming on board with Vivacity Mall, Mr.JP.Biswas, VP Leasing & Marketing, Sheth Developers said, “Our tie-up with Shopper’s Stop and Hypercity is in line with our promise of getting top brands in to Vivacity. We look forward to give a world class shopping experience to our customers all under one roof. With all these brands pitching in at Vivacity, we feel our customers will rediscover the way they shop.”

Commenting on its strategic tie-up with Vivacity, Govind Shrikhande, Customer Care Associate & President & CEO, Shopper’s Stop Ltd, said, “We always wanted to have a large Shoppers Stop store in Thane. Vivacity has filled in the gap perfectly for us. In our opinion Vivacity will be a dominant retail property in the Central suburbs. The size and expanse of the mall combined with our ability to pull customers will be key to the success of both Shoppers Stop as well as Vivacity.”

Speaking further on being the anchor tenant of Vivacity, B.S.Nagesh, Customer Care Associate & Vice-Chairman, Hyper City Retail Pvt, Ltd said, “We feel that Thane and its adjacent catchment area has a lot of present potential, and when we take into account the upcoming projects, the outlook becomes one of the brightest in the country. In view of this we have signed up for our second Hypercity in Thane at Vivacity. The strategic location of Vivacity and its ease of access is ideal for a hypermarket.”

Vivacity will be located on the Eastern Express Highway, spread over an area on 1 million sq.ft. Vivacity is first retail venture of the Sheth Developers and happens to be one of the largest malls in the state, with one-of-its kind experience for its consumers. The mall has currently has 37% occupancy by retailers from the country and are hoping for a 100% occupancy by the end of the year. The Mall is slated to open its doors for its consumer in the mid of FY 2011 – 12

About Sheth Developers:

Sheth Developers is one of the trusted Real Estate and Property Company with major presence in Western India and UAE with over 20 years of experience in building large residential and commercial complexes and townships in Mumbai and the suburbs. Sheth Developers is one of the few real estate developers to have won the prestigious awards like Best Interior Design for Iris Bay Dubai, Best High Rise Development for Vasant Lawns Thane; Best Residential Building for BeauMonde , Mumbai and many more. Also, it is one of the few distinguished developers to have won the Best Developer Retail Project (Future) for designing Vivacity Mall, Thane; one of the largest Malls in India. Sheth Developers Pvt Ltd has earned consistent accolades for its notable projects in India and abroad.

About Vivacity

Sheth Developers has extended its real estate presence with its colossal retail development – Vivacity. One of the largest malls in the country with a GLA close to 1 million sq ft, Vivacity is set to raise the bar in the industry. With a team of best in the class professionals on the projects, marketing and leasing fronts, Vivacity will ensure that both the retailers’ and the consumers’ interests are well taken care of.

For further information please visit: www.shethdevelopers.com

Media Contact for Vivacity:

Leon De Souza / Deepshri Iyer

leon@corvoshandwick.co.in / deepshri@corvoshandwick.co.in

+91 9833581376 / +91 9987266410

IT’S a nagging, almost decade-old doubt that has kept foreign direct investment (FDI) in retail at bay: will the entry of Big Retail hurt the six million kirana stores? As the nation grapples with the question, a series of interesting pilot projects are demonstrating how the giants and the dwarfs can co-exist, and even fuel each other’s growth, thanks to a little help from microfinance institutions (MFIs).

Biggies like Wal-Mart, Metro Cash & Carry and the Future Group have forged partnerships with microfinance and financial institutions to sell merchandise on credit to rural kiranas. The MFIs not only provide credit, but also double up as valuable intermediaries that collect orders from the kiranas, source the merchandise from big retailers and deliver it at the kirana’s doorstep. What’s more, the MFIs do not charge any interest on the credit extended to the kiranas. Instead, they receive a commission from the retailers, for whom this is a small price to pay in order to win new markets and grow faster.

While Metro has been running a pilot with SKS Microfinance in Hyderabad for a few months now, the Future Group has just inked a similar deal with SKS. Bharti Wal-Mart, an equal joint venture, has a partnership with Kotak Mahindra Bank for cards that offer ready credit to the kiranas. RPG-controlled Spencer’s Retail too is keen to explore such opportunities.
If these experiments click, it could enable large retailers to pry open vast rural markets, help kiranas become more efficient in their sourcing, give consumers the benefit of lower prices, and build a thriving retail ecosystem where the lambs can indeed sleep with the lions.

It might also soften the resistance to FDI in retail. If kiranas are empowered to source more effectively, they may be able to co-exist meaningfully with organised retail if and when FDI is opened up. Though foreign retailers are allowed to set up cash-and-carry formats, FDI is not allowed in supermarkets, etc.

“This will open up a completely new rural distribution model and help us in understanding rural consumers,” says Future Group CEO Kishore Biyani. “This is probably the first time the Indian retail sector is targeting the rural market in such a big and strategic way.”

Future Group has started to sell staples, dry groceries and FMCG products through SKS’s network to some kiranas in the North, including a few in the National Capital Region. It also plans to supply its bouquet of private label products through this network. ‘Partnership a win-win one’
IT’S a win-win partnership as we can use our sourcing strength and SKS’s huge network of kirana clients to supply products to them at competitive rates. Eventually, we can include other products as well,” says Biyani.

SKS provides interest-free working capital loan to its kirana clients. The kiranas use this to purchase their inventory from Metro and Future Group at wholesale prices. The loan amounts range from Rs 5,000 to Rs 25,000. SKS, in return, receives a fixed commission from Metro and Future Group for the total purchases a kirana makes.

“Kiranas access superior quality products at very reasonable prices, delivered right at their store, thereby increasing their productivity,” says SKS Microfinance COO MR Rao. SKS has 2.72 lakh kirana store owners as its customers (4% of its total of 68 lakh members). Industry estimates suggest that only 35% of the 6 million-odd kiranas in India are properly serviced by consumer goods companies and distributors. The remaining 65% is serviced by a multi-layered distribution network that is often inefficient, but still adds a substantial amount to the product cost.

German wholesaler Metro Cash and Carry India plans to scale up its Hyderabad pilot nationally soon. The company is also helping rural kiranas with tips on effective use of working capital and strategies to serve their catchments better. “We could have launched this as part of our CSR programme, but we chose to make it a part of our core business plan as the potential is huge,” says Metro Cash & Carry India director (customer management) Ajay Sheodaan.

Kotak Mahindra and Bharti Wal-Mart have rolled out a “business card” which offers credit to kiranas starting from Rs 8,000. The credit is free of interest for 14 days after the purchase and an interest rate of 1.5% per month is charged after that. Kiranas are now making transactions ranging from Rs 15,000 to Rs 1 lakh on this card.

Kotak Mahindra Bank executive VP and head (credit cards) Subrat Pani says the customer acceptance for this lowticket working capital funding is growing on a daily basis. “We have around 700 members from Amritsar and Chandigarh. Within six to seven months, we have been able to drive almost 9-10% of the total sales at Bharti Wal-Mart. This could potentially go up to 12% in the next three months,” he says.

Enthused by these initiatives, RPG Group vice-chairman Sanjiv Goenka says Spencer’s Retail will also study such possibilities. “Any new model which expands penetration is good for the industry,” he says.

However, Retailers Association of India CEO Kumar Rajagopalan responds cautiously. “The real potential for modern retail lies in the top 100 cities. Some companies may be experimenting on newer models, but we need to see how much business it can generate,” he says.

Agre Developers, a Future Group company, formerly known as Future Mall Management, has struck a deal with Bangalore-based developer the Sattva Group to build a wholesale trading market on the lines of Dubai’s Dragon Mart and China’s Yiwu wholesale market. This is the first of the eight businessto-business (B2B) markets that the company is planning to start across major cities in the course of the next few years. These trading hubs will stock general merchandise, IT peripherals, hardware products along with other commodities typically spread across a 5-10 acre space. The BSE listed-company will also be getting into the infra-logistics and retail infrastructure business. 

While neighbourhood stores have been growing in single digits since 2006, modern trade has had double-digit growth, says a Nielsen study

Arrival of big retailers has had an impact on small grocers, but neighbourhood stores are still growing their sales, although at a much lower rate than modern trade, according to data from market research firm The Nielsen Company.