Walmart can charm Indian farmers if it can become a partner of shops than predator, using finance and logistics as value drivers

Two significant protests are currently raging across India, and both of them indirectly have a bearing on Walmart, the US-based giant retailer which has two separate footholds in India -- one through a $17 billion effective buyout of online retailer Flipkart and the other through the so-called cash-and-carry business  through which it takes part in wholesale trade. While farmers have been dumping milk and vegetables  on the streets as part of nationwide protests to seek remunerative pricing, traders who are upset that Walmart may steamroller millions of mom-and-pop shops across the country are up against the multinational giant.

It is Walmart's moment of reckoning on what it should do, though on paper it is committed to India for the long-term. Permission for foreign direct investment (FDI) in multi-brand retail trade may be a while away but there is little doubt that the Baron of Bentonville has a not-so-subtle hope that it will happen sooner than later.

FDI is already allowed fully in food retail and Walmart has fewer miles to go than it might seem to the casual observer.

The most prominent argument in favour of Walmart entering India is in the belief that it will offer better prices to farmers using its supply chain clout and purchasing power, while the argument against is that it may in the process squeeze out traders and/or shopkeepers and in the future, even farmers.

If there is one thing that this icon of American capitalism can learn, it would be from another major icon of American capitalism: McDonald's. The fast food chain has won hearts and minds in India with what seems like a simple slogan: When in India, be Indian.

Walmart has had a chequered performance across the planet because what is good for the US may not necessarily be good for other countries. In the US, Walmart has typically thrived on the consumer boom led by industries and used its supermarket format to sell huge volumes of goods while using its procurement power. But the US has been a developed market in which middle class salaries are high, distances are often huge, time is a scarce commodity and real estate often cheap as a proportion of overall costs. Similar conditions do not apply in India.

Walmart store. Representational image. AFP.

Walmart store. Representational image. AFP.

McDonald's does not sell beef burgers in India. Instead it invented the aloo-tikki burger as a multinational product. It swapped its typical drive-in sales for home delivery. Above all, as a franchisee of the fast food giant once told me, McDonald's real deal is not in the burger or meat but in the idea of family dining at affordable prices in clean conditions. So this "value plus hygiene" formula is now suitably Indianised, with reasonable success.

What can Walmart do to steal a leaf out of the Big Mac's book? Simply, it has to bear in minds two factors. First, that India's government has a fiscal deficit problem that makes high minimum support prices a budgetary challenge, while the banking system is led by public sector behemoths that often end up struggling with mountains of bad industrial loans or unsustainable farm loans that are waived under political pressure. Secondly, shopkeepers in India form part of an economic ecosystem in which jobs are not easy to come by while they serve local markets often as last mile players, ferrying stuff from the wholesale to intermediate markets and then on to homes.

Walmart can dramatically improve its prospects in India and reduce the doubts and hostilities that plague it if it becomes a partner than a predator. This means that Walmart has to do some stuff that a bank or a non-banking financial company might do in India, such as giving out loans. It may not necessarily give crop loans but it can partner banks to underwrite some of the risk, using its increasingly sturdy data science clout. Or it may extend supplier credit -- something like an advance salary for farmers deductible against future deliveries. Given the vagaries of the monsoon and the vulnerability of India's banking system, Walmart can be a de facto financial partner if it tries some smart innovation. This can potentially be to Indian farmers what the aloo-tikki burger was to McDonald's when it went to woo India's lower middle class in the difficult 1990s.

Let us go back a step further in the 1990s when PepsiCo entered India with much fanfare and even greater opposition. What is somewhat forgotten is that the cola giant also had to fulfill some export obligations linked to farm goods. Pepsi later got into contract farming in Punjab,  buying potatoes from farmers and driving abundance in the local mandis. Walmart just has to take a similar initiative and scale it up. Its profit margins may be lower than usual, but in the process, it may win more local support than it can imagine now. PepsiCo's "collaborative farming" that includes banking and financial support is a role model for anyone who sees industry at loggerheads with farming.

On the other hand, shopkeepers and traders may be roped in by Walmart as logistics partners through innovative arrangements that might make them warehouse owners and delivery agents. Right now, Walmart has a programme called Mera Kirana that is out to modernise India's mom-and-pop groceries as part of its cash-and-carry business, but its utility may be limited unless it systematically scales up the shops in large numbers as logistics partners. It can use its financial clout and data science strength to help both farmers and shopkeepers if it agrees to regulatory supervision as a healthy intermediary than a Western cowboy out to shoot the natives.

Flipkart has its subsidiary called eKart Logistics, which describes itself as "India's largest logistics and supply chain company delivering shipments across 3800+ pin codes." Walmart evidently had its eye on this less-talked-about unit when it made its acquisition but eKart has to become more rural and more of a facilitator than competitor for local shopkeepers to fit into a scheme that might help Walmart connect the dots between the farm and the fork in India. Notably, eKart received more than Rs 1,600 crore in funding from Singapore-based Klick2Shop Logistics Services last January in what appears to have been a slow-motion run to win over Walmart.

Charming the farmer is part of Walmart's strategy in India, but befriending the shopkeeper is not something visible. If the giant wants to win India, it has to show some affection to match its strengths.

 
(The writer is a senior journalist. He tweets as @madversity)


Updated Date: Jun 06, 2018 12:13 PM

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