It could be advantage Walmart, if its India strategy clicks: BMR

Walmart's ongoing deliberation on reworking its business model in India by introducing private labels would be a genuine compromise on its global multi-brand business model, feels Vivek Gupta, Partner at BMR Advisors who closely tracks the retail sector.

Speaking to CNBC-TV18, Gupta believes from a regulatory standpoint the plan could provide them entry into Indian market.

Walmart is considering setting up stores under the 100 percent FDI route for food retail but to sell their non-food retail items, they plan to use the single brand route by introducing their own single brand private labels.

He believes that the retail sector will gradually open up in India and if this plan indeed materialises it could provide a sort of first-mover advantage to Walmart.Below is the transcript of Vivek Gupta's interview to CNBC-TV18's Ashmit Kumar.Q: Do you think Walmart’s new strategy is likely to face challenges and how do you foresee this going through? A: It is different from Walmart’s global model. Walmart globally is a multi-brand store so the fact that they do only private labels in India under the Walmart brand would be a genuine comprise on the global model that Walmart does follow. However, from a regulatory standpoint, I think that is the ‘in’ that they get into India at this point in time. So, single-brand retail is perhaps what they can do for non-food products. I am not aware of the fact that they are considering this but if they are, that is probably their ‘in’ into India in a meaningful fashion on the retail side. Q: Within the four walls of regulations Walmart trying to be innovative. You mentioned that this is a departure from the norm that we see globally. Speaking of this as a departure, what are the challenges that they will face and will they need to go to the extent of also having a separate legal entity to allow these plans to take action? A: Retail company will need to be a separate company from a regulatory standpoint; there is no doubt about that. The basic challenge would be that they are then introducing only a very limited section of products. So, when I walk into a Walmart in the US for example, I can virtually buy anything under the sun. If this private label alone, then basically a very limited section of what a Walmart would ordinarily offer is available to the Indian consumer and if it is constrained by guidelines I guess that is what they can do at the most.Q: Speaking of this two legged strategy that Walmart has in place, we understand that the stores will be divided broadly into food and non-food segments. Just a question on the viability of such an approach of this innovative strategy by Walmart. A: On the food side with the recent liberalisation I would call it a courageous liberalisation. With the recent liberalisation they could do a multi-brand food retail store of course subject to conditions, so product source out of India and so on and so forth. The law on the subject is still evolving so whether in the same entity, in the same store can I do private labels plus food retail is something that would need to be tested and something that would need to be discussed with government. However, of course multi-brand food stores with produce from India is something that is now open to 100 percent foreign investment. There are a bunch of challenges on the non-FDI side of course of this entire food business on the supply chain side, etc but Walmart is very good at fixing the supply chain. So, hopefully one would see Walmart food stores in India soon.Q: With respect to the FDI regulations, as you rightly pointed out they are yet to see that degree of judicial scrutiny so it is to be tested but given the broad understanding that we have of the FDI regime especially with respect to retail, the conditions that are placed, the riders that are placed on the foreign retailers, does that in a way put them at a competitive disadvantage vis-à-vis the Indian players, the Indian retailers?A: From a regulatory standpoint, we cannot wish away the fact that retail is a very sensitive sector. So, the fact that over the last three years we have seen some opening of the sector by-and-by and we have seen some of the largest brands come into India now in a reasonably meaningful fashion is something to be lauded. At the same time, one has to realise that being a sensitive sector it will open up gradually only. Therefore if the strategy is correct, if this news is correct then Walmart strategy of getting an ‘in’ into India by launching its private label and launching food retail on the side is something that gives them a direct experience of working with the Indian retail consumer.I guess the basic assumption would be that over time, retail will open even more as we go along. As the government, as India gets more comfortable with foreign retailers selling in India, the sector is bound to open in the long-term. With that in place, you could take a first mover advantage by entering in this manner. We have seen stuff happen in e-tail, we have seen global giants in e-tail also come by and setup shop, invest billions of dollars. If this would mean that something would start happening on the physical retail side also, that would be welcome. Of course at the end of the day, is it a competitive disadvantage vis-à-vis Indian retailers? Yes but there are huge competitive advantages too. They know the business very well, they have experience of operating globally, they have large amounts of capital at their disposal so as the Indian sector opens up, they could play a more active role in that sector.