World Retail Conference: Emerging Markets Offer Opportunities

GLYNN DAVIS

BARCELONA, Spain — Wal-Mart's India operations could account for as much as $10 billion in sales within the next five to seven years, according to an executive with Bharti Enterprises, which inked a joint-venture agreement with Wal-Mart in late 2007 to develop the region.

Speaking on a panel at the World Retail Congress here, Rajan Bharti Mittal, managing director of Bharti Enterprises — a leading telecoms provider in India — stated: “In five to seven years, telecoms and retail should be 50:50, and $10 billion is where telecoms is now, so that's where retail should be heading.”

The growth highlights the huge potential for international retailers in the world's emerging markets, according to Bharti Mittal and other speakers on the panel.

With only a small percentage of Indian retail “organized” (chains as opposed to mom-and-pop businesses) the potential is significant, especially with a young population in India, where 720 million people are below age 35, Bharti Mittal said.

He said the joint venture brings together the experience of Bharti in the Indian market with the global retail expertise of Wal-Mart, specifically in logistics, supply chain, processes, technology and management.

To thrive in India, Wal-Mart and other merchants also need the infrastructure to support substantial retail operations, but Bharti Mittal is confident that this will happen.

“Once retailers come to India and set up shop, then in two to three years' time it will all take off, and there will be roads and airports,” he said. “The proliferation will then be high-speed.”

William Fung, group managing director of Li & Fung, which operates the Circle K convenience stores in China, highlighted to attendees the opportunities of the high-growth “RIC” countries (Russia, India and China), with retail sales in Russia and China each growing at 17% per year, and retail sales in India growing “in the high double-digits.”

In the more developed Russian market, Fung said chain retail has grown from 12% of the market to 50% in only 10 years, so in China, where only 3% is controlled by chains, the “room for growth is tremendous,” he said.

“If you are not growing at 30% per year then you are losing market share,” he said.

But international retailers looking to tap into these high-growth, emerging markets will have to contend with some strong local competitors, such as Wumart Stores in China, which is a rare non-state-owned retailer that has built up a portfolio of around 700 stores, with 85% located in the Beijing area. This makes it the No. 1 player in the Beijing market and No. 7 in China overall.

Wu Jiangzhong, chairman of Wumart Stores, told attendees that the business has grown rapidly from a combination of organic growth and the acquisition of some 20 businesses. What has made it successful is that unlike many other Chinese retailers, it has learned from international operators and built a uniform platform to support all its acquisitions and instigated a policy of employing educated managers and maintaining high standards throughout the business.

Uniquely among Chinese retailers, Wumart has been a strong advocate of using technology, which has enabled it to organize its business better, standardize its processes and more easily integrate the companies it has acquired into the Wumart organization, Wu said.

The company has also implemented a multi-format strategy with a portfolio that now includes hypermarkets, supermarkets, mini-marts and convenience stores, which have made it easier for Wumart to cater to a broad spread of customer segments, he said.

This strategy has also helped it build a strong base in specific regions — since most of its stores are in urban areas, the selection of formats gives Wumart the opportunity to build small-footprint stores in even the most constrained of locations.

Although the Chinese government has sought to provide various forms of protection to smaller local players against the incoming international retailers, Wu said the increasing need for safer food of a higher standard will provide opportunities for global merchants as well as for organized local operators like Wumart.

With so much potential in the home market, Wu said he does not foresee the need yet to look to expand outside China.

“I think China is such a huge market that Wumart does not need business from overseas,” he said. “There is enough for us here for 10 years. But after that I'll decide whether to go abroad.”