Walmart paid bribes in India? Retail giant probing allegation

Oppn May Use It To Fight FDI In Retail New Delhi: Walmart has disclosed that it is probing alleged violations of the US anti-bribery law in India, China and Brazil, a development that may trigger fresh opposition to the opening up of domestic retail market to global firms. The disclosure will provide ammunition to the opposition that is planning to corner the UPA on its decision to allow FDI in multi-brand retail when winter session begins next week. "Since the implementation of the global review and the  enhanced anti-corruption compliance programmes, we have identified or been made aware of additional allegations regarding potential violations of the Foreign Corrupt Practices Act," Walmart said. WIDENING WEB  EARLY 2011 | Walmart began audit of anti-corruption practices of foreign arms in  Mexico, China and Brazil  JULY 2011 | The retailer identified "significant weaknesses" in the 3 countriesAUTUMN 2011 | Probe widened to cover all 26 subsidiaries APR 2012 |New York Times reported that in 2005, Walmart had found "credible evidence" of Mexican subsidiary paying bribes to open more stores  NOV 15, 2012 | Walmart officially acknowledges internal probe into alleged violation of US anti-corruption law in India, China and Brazil      We will not tolerate  noncompliance anywhere or at any level of the company. Our expectation is that each and every one of our associates will adhere not only to the letter of the law, but also to the highest standards of personal integrity — Walmart ED probes Walmart investment in India      The Enforcement Directorate has started a probe into allegations of violation of foreign exchange rules by Walmart in its investment of $100 million (around Rs 450 crore at the 2010 exchange rate) in a company owned by the Bharti group, its joint venture partner in the wholesale cash and carry business. The RBI, which was asked by the commerce ministry to examine a possible Fema violation in the deal, has reportedly asked the ED to probe the charge. P 17 WALMART PROBE BJP says retail FDI issue has turned murkier  New Delhi: On its probe into alleged corrupt practices in India, China and Brazil, Walmart said,      "When allegations are reported or identified, we, together with our third party advisors, conduct inquiries and when warranted, we open investigations." The company added, "We have inquiries regarding allegations of potential FCPA violations in a number of foreign markets where we operate, including but not limited to Brazil, China and India. This is in addition to the ongoing investigation in Mexico."      The disclosure, made in a regulatory filing, suggests Walmart has uncovered evidence of potential violations of the FCPA as the fallout continues from a bribery scheme involving the opening of stores in Mexico that was the subject of a New York Times investigation in April. NYT quoted an unnamed source as saying that the disclosure did not mean that Walmart had concluded it had paid bribes in China, India and Brazil. "But did indicate the company had found enough evidence to justify concern about its business practices in the three countries—concerns that go beyond initial inquires and that are serious enough that shareholders need to be told," the newspaper said. It also said the justice department and the Securities & Exchange Commission were looking into the company's compliance with the anti-bribery law.      When contacted, a Walmart India spokesperson declined to comment on specific allegations until investigations were concluded by the company. "This investigation is unrelated to the recently publicized public interest lawsuits related to claims that Wal-Mart is in violation of FDI laws," the spokesperson in an emailed response to TOI.      NYT reported that the expanding investigation began in spring 2011 as a relatively routine audit of how well Wal-Mart's foreign subsidiaries were complying with its anti-corruption policies. The audit initially included Mexico, China and Brazil with accounting firm KPMG and law firm Greenberg Traurig conducting interviews and spot checks of record systems.      The BJP said the latest disclosure by the US retailer makes the issue of allowing FDI in multi-brand retail "murkier". "We need to have answers as to why the government is in a hurry to allow FDI in multi-brand retail.These questions need to be answered," BJP spokesperson Nirmala Sitharaman said.

Foreign Institutes Tag Along with Retail FDI

ON THE FLOOR Australian institute unveils its first post-graduate programme in retail management and more seen following suit; Indian B-schools too plan courses to meet demand     Even before a Walmart or a Carrefour steps into the booming Indian retail arena, global retail institutes are on their way to teach a few tricks of managing the shop floor to local management students. Barely a week within the government opening the gates to foreign direct investment in multi-brand retail, Australian Retail College, which specialises in long-term training and development programmes for retailers in Australia, launched its first post-graduate programme in retail management in Hyderabad. The campus, started in collaboration with local retail institute Great India, will be followed by a second branch likely to be opened soon at Lavassa, near Mumbai.  "FDI in retail underpins the need for Indian retailers to focus on their people," says Mike Wallace, CEO, Australian Retail College. The course covers a range of subject areas including packaging, strategic training and merchandising, he says, adding, "The faculty will be local but we will come from Australia to develop their capacity. Our Australian programmes will be customised for the local market."  Pointing to the need for more foreign technology and more global managers, Carlo Altomonte, associate professor, University of Bocconi, Italy, says, "This is likely to lead to more foreign education coming into India or Indian schools have to upgrade and provide more global education... The kind of policy signals the government has sent out will lead to a rejig of the education sector in India."  In fact, the retail boom and anticipation of the sector opening up to FDI had already prompted several Indian business schools to launch either full-time or part-time retail management programmes and many of them are now planning to start new executive management courses or management development programmes (MDPs) to meet the increasing demand for specific skill-oriented programmes.  Top domestic B-schools such as SP Jain Institute of Management and Research, Indian Institute of Social Welfare and Business Management (IISWBM), Kolkata and Jamnalal Bajaj Institute of Management Studies (JBIMS) – which have full-time retail management courses or retail as an elective in their curriculum, are looking at new MDPs. "The demand for specialised courses/MDPs in the area of 'Retail Management Practices' will be generated both by the retailer and also manufacturers and supplier brands doing business with retailers as they will need to enhance their understanding of retailer," says Atish Chattopadhyay, professor of marketing and deputy director of the two-year PGDM Programme at SP Jain Institute of Management and Research.  Adds Kavita Laghate, director, JBIMS: "With the opening up of FDI in retail, we will incorporate a more skill-focused programme, thereby readying a talent pool that fits the requirements of the retail industry." The institute plans to focus on short-term MDPs – skill enhancement of the existing management cadre. IISWBM, on its part, plans to launch a parttime programme for working students on retail management. The programme will be targeted at front-end employees. In addition, the institute – which offers full-time post graduate programme in retail management — is working for a tie-up with large corporates where postgraduate retail management students can have hands-on training.  However, academicians say the retail industry needs to get further streamlined. "The retail industry in India needs to get a bit more glamourised to attract talent," says Gairik Das, head of the department of retail management and associate professor at IISWBM. "No good student will come in unless there is a good career prospect and a lot needs to be done by the government, industry and academia," he says. The industry needs to create better working conditions, he says. "Even if we don't consider FDI, within India too there is a good environment for retail. The sector holds tremendous potential as far as jobs are concerned, but the government needs to make proper labour rules, minimum wage structures and working conditions to attract good students."  Post opening up of the sector, the commerce and industry ministry in a full-page advertisement said the 51% FDI in multi-brand retail will create more than 1 crore new jobs. India is fifth among the top 30 emerging markets for retail, according to Global Retail Development Index 2012.  "Around 90% of workforce is required in the front-end and that's where retailers are facing a supply challenge. However, most courses offered in India have limited seats, which can't fulfil the demand," says Govind Shrikhande, managing director at department store chain Shoppers Stop. An international retail school, he adds, will be better in terms of global case studies they bring. "Hence, retail colleges, either Indian or international will be good for the industry," he says.  Some point out the challenge of finding middle-management talent. "It's not the senior personnel who make a successful retailer, it's the store managers. If a foreign retailer opens 40 hypermarkets, there won't probably be 40 good store managers. So talent will come but it will take time. That's why the plan in the beginning can't be very ambitious," says Paul Martin, managing director at UK-based consulting and research firm Planet Retail, which has clients including Unilever, Carrefour and Walmart.  rica.bhattacharyya@timesgroup.com

India:Why FDI in Retail Will Work

Evidently, there is no national consensus on allowing FDI in retail. Advocates tout it as the much-needed major policy push that could arrest the economic downturn, bring in not only foreign funds but advanced technology and expertise, create infrastructure, offer better prices to farmers, generate ancillary industries and create millions of jobs. However, sceptics present a doomsday scenario: it will wipe out small farmers and traders, result in job losses and open the floodgates for cheap goods from countries like China, adversely impacting Indian industry.  While both arguments have some validity, the two sides err on the side of extremes. FDI in retail is not an unmitigated disaster as projected by some, nor a magic wand leading to instant economic growth. If allowed with professional circumspection and safeguards and viewed dispassionately, it is in the country's national interest to allow FDI in retail.  Opening up the telecom sector to foreign investment worked by bringing a communication revolution that embraces everyone. Similarly, foreign investment in the automobile industry ended the long wait for outdated scooters and cars and led to leading global companies vying to sell the latest models in India. When Pizza Hut, Domino's, McDonald's, Wimpy, Burger King, KFC and other such international brands were allowed, there were orchestrated demonstration in many cities; they were painted as anti-people and anti-Indian enterprises. We were told Haldirams, Bikanerwalas, Nirulas, Nathus and their ilk will vanish. All these Indian chains have multiplied their outlets, diversified their production line, upgraded their packing and presentation, and are doing roaring business. In fact, some of the largest MNCs like McDonald's, Pizza Hut and Domino's have been forced to Indianise their offerings. Where else in the world would you find a McDonald burger with paneer and potato patties and coriander sauce?  While many starve, millions of tonnes of grain rot for want of adequate storage facilities. Ask how farmers in Punjab feel when their produce is not picked up and lies unsold. Can they negotiate higher prices? When the mercury rises, fruit don't last more than two days. TV channels often show how adulterated ghee, milk made out of detergent, mangoes and papayas ripened with masala, vegetables and fruit injected with dangerous concoctions are flooding the market. Who is to blame? FDI in retail?  No one should underestimate the ingenuity of ordinary hawkers and small grocery owners. They know how to reach out to their potential customers. Today, in many areas of Delhi, vegetable vendors present their carts, laden with fresh stuff straight from the farm, as early as 6:00 am. Many joggers and walkers find it convenient to pick up their daily requirement of vegetables from these vendors. In the evening, they move near temples where devotees find it a blessing to shop for fruit and vegetables at the temple gates. Small grocery shops realise the value of home delivery, small stores also reduce a rupee or two on most items. This demand-and-supply relationship will remain unchanged notwithstanding the entry of bigwigs like Tesco, Carrefour and Wal-Mart.  Even without FDI in retail, more than half of electronic and electrical items, machine tools, building hardware, bathroom fittings and sanitaryware, lights and chandeliers sold in India are made in China. Why blame the US for getting its flags from China? Come Diwali, and millions of porcelain Lakshmi and Ganesh idols made in China flood local markets. You can't wish Chinese products away; there is no option but to compete with them on price and quality.  The purchasing power of different sections of Indian society is very elastic. Many relish lunch delivered in a tiffin box for . 50 while a buffet lunch costs around . 5,000 in most five-star hotels. So, mega stores of FDI in retail can also coexist with small traders, grocery shops and corner vendors; they will attract customers from different sections, as has been the case in the restaurant business. Those raising the bogey against FDI in retail are the same persons who opposed FDI in the telecom, automobile and restaurant sectors. The government can ensure benefits for Indian industry by making outsourcing of 35% requirements of megastores from India itself. They can also be asked to undertake R&D for better and higher-yielding seeds, build connecting roads, set up a chain of warehouses, cold storages, food processing plants and create green belts in the vicinity of stores as also schools, hospitals, sports and recreational facilities for their employees. Anyone claiming that FDI in retail will not create jobs is being dishonest.  (The author is a former  diplomat)

Retailers back at hypermarkets for growth

Mumbai: Mukesh Ambani's Reliance Retail probably signalled the arrival of hypermarkets when it opened the first big-box store spread across 165,000 sq ft in Ahmedabad four years ago. But things did not quite work according to plan and the retailer downsized its largest store within the first year of operations. The focus then had shifted to neighbourhood stores under Reliance Fresh brand. 

    On a comeback, the retailer is now rejigging the hypermarket story with Reliance Mart. Others like Dutch retail chain Spar, K Raheja's Hyper-City and the country's largest retailer Future Group too are banking on the hypermarket format to ring in profitability and differentiation. 
    "The neighbourhood convenience store concept has not done well and it's a learning for all of us in the industry. The big-box model 
can offer the choice to 
customers which a convenience store cannot. It's 
also clear that financial viability will rest in the big stores as the small format stores do not have a feasible business model," says Damodar Mall, director for food strategy at Future group, which operates stores like Big Bazaar. 
    The economic crash of 2008 halted the hypermarket push as real estate and cash crunch became big hurdles for 
big and small players. Hardly any hypermarkets opened in 2008-09 with even smaller format retailers struggling to stay afloat. The now-shut discount retail chain Subhiksha had added some 1,400 neighbourhood stores in just two years during the boom period only to be wiped off by 2009. Reliance Retail says hypermarkets will be a strategic growth driver within its retail play. There are 16 Reliance marts operational currently. Future Group is ramping up the Big Bazaar 'Family Centre' model which is typically 75,000 sq ft stores offering service facilities such as beauty parlour and gymnasium. "We have ten stores now and will have two each in the big cities going forward," Mall adds. 
"Large format stores will be the model for profitability considering they operate on economies of scale. If retailers get the supply chain in place hypermarts have the potential to get huge footfalls as they are more than just a place to shop at," says Anand Mour, VP-FMCG & retail at brokerage firm Indiabulls Securities. 
Tweaking the format 
But the hypermarket story is being tweaked to Indian conditions. 
Spar India, which has a licence agreement with Dubai based Landmark Group's Max Hypermarkets, plans to almost double the number of hypermarkets from eight currently to 14 by March next year. "What is significant this time, though, is that retailers are talking about hypermarkets which are typically 50-70,000 sq ft in size, and not more," says Viney Singh, MD, Max Hypermarket India. Spar has two types of hypermarket formats—mini-hypers which are spread across30-40,000 sq ft while the regular hypers are 50-70,000 sq ft. 
    HyperCity, which started in Mumbai's suburb Malad five years ago, says it understood that 100,000 sq ft plus hypermarket model won't work in India. A few uneventful years later, it is now aiming to grow rapidly but with a size of 70,000 sq ft stores in the metros. "We have become very clear about the size of the stores that we should adopt in past six months. There is still not enough product range available to be effective and profitable in the huge boxes. The tier 2 stores take longer—about two years— to turn profitable compared to metros. Hence we are keeping the size of the tier-II stores at about 50,000 sq ft," says Mark Ashman, CEO, Hypercity. 
    He says the retailer plans to add seven new stores by 2012 to the present tally of 10, and make it 50 stores in four years. 
    "The last three years have been a phase of discovery for Indian retailers and has resulted in changes to the original hypermarket format. The changes will continue because there are no models you can apply from any part of the world here," says retail consultancy firm Technopack chairman Arvind Singhal. 
Big Box On The Shelf 
t Hypermarts offer economies of scale 
t Retailers can differentiate themselves through large format stores 
t Hypermarts have a viable financial model compared to neighbourhood stores 
t Dutch retail chain Spar will double its hypermarts by March 2012 
t Hypercity is looking to have 50 hypermarts by 2015 
t Future group to expand its big-box Big Bazaar Family Centres

Are E-Retail Firms in India Building a Bubble Again?

FOCUS ON NOS., NOT PROFIT, ISN'T A SUSTAINABLE MODEL K Vaitheeswaran's career as an entrepreneur in online retail is almost as old as online retail in India. For nearly a decade and a half, he nursed his ecommerce startups, waiting for the business of selling things on the internet to grow big. Now that the moment has come, he is finding to his consternation that he is in the middle of what has all the makings for a perverse fight in India's online retail business.  "There is hype now for topline growth with no thought of making money. My worry is that the lessons of the previous dotcom crash have not been learnt," says Vaitheeswaran, the founder of India Plaza, an ecommerce portal that started life in 1999 as Fabmart.com, the country's first e-retailer.  Flush with cash from venture capital and private equity funds, online retailers are pursuing a singleminded strategy of acquiring as many customers as they can as soon as they can. To stake out the largest possible territory, they are cutting prices so deep that even costs are not being covered, he says.  "When we launched, we offered buyers a 25% discount from the nearly 35% margin that we made on every book and charged them shipping costs. Today if discounts alone go up to 40% and shipping is free, how can this model be sustainable?" he asks. But Vaitheeswaran's complaints do not mean that he will not give as good as he gets. In February, he raised $5 million (. 22 crore) to help him grow his topline and volumes. He expects shipments to rise to 500,000 this year from 150,000 last year. Profits Come in Once Business Scales Up  Finally this is why ecommerce is hot. The growth is there and profits too — when businesses scale after 3-4 years," Vaitheeswaran says.  One of Vaitheeswaran's competitors is Sachin Bansal, a former Amazon India employee and the co-founder ofFlipkart.com, one of the country's largest online retailers for books and electronics. He is now racing to set up a delivery network that will ship goods to the doorstep of customers. In the next few weeks, Flipkart Logistics will start operations in 15 cities, shipping items such as television sets and washing machines. Bansal is hoping this flurry of activity will raise revenues at his four-year-old firm to . 500 crore at the end of March 2012 from . 70 crore in the previous year. Just three weeks ago, he raised $20 million from New York-based private equity firm Tiger Global.  "Flipkart too was a profitable company in the first two years when we had invested our own money and were selling books with transactions of . 30-40 lakh every month," says Bansal.  Soon after the company raised private equity money (Flipkart has raised over $30 million) and with internet penetration growing, growth took precedence over profitability.  "E-retail is a multi-billion-dollar opportunity, so it is better to invest in growth and acquire as many customers as possible now rather than target a few million in profits," says Bansal, adding that "investors and entrepreneurs are completely aligned on this model". In Bangalore, serial entrepreneur K Ganesh is also readying for battle. He plans to launch an internet logistics company for warehousing and shipping of goods sold online as well as portals to sell jewellery and products for babies. "These are capital-intensive businesses. Setting up a fullfledged internet logistics firm with 300 delivery points will take up to $50 million," says Ganesh, who sold a majority stake in his online education firm Tutor Vista to the UK education and media company Pearson for . 577 crore earlier this year.  And in Delhi, group-buying portal Snapdeal.com is raising fresh capital of . 200 crore, with investors valuing the firm at about . 1,000 crore.  As growing numbers of Indians in cities, towns and villages get connected to the internet, the expectation is that they will leapfrog from organised offline retail to e-retail. Such exuberance is reflected in the valuations being commanded by ecommerce firms and causing fears of another dotcom meltdown of the type when investors poured money into startups without any clear plan to earn returns. "I remember in the year 2000 I got a single cheque for . 243 crore from an investor in Indya.com without even a business plan," says Pradeep Kar, founder of networking firm Microland and one of India's earliest internet entrepreneurs to raise nearly $50 million of private equity money for a string of internet businesses, including tech news portal ITspace-.com and lifestyle website Indya.com.  At that time online businesses hawked only news and content and the race was to grab the eyeballs of the around 3 million Indians who were online. With no clear revenue model, Kar's tech portal shut shop and Indya.com was sold to Star TV. This time, the conditions for ecommerce are much better than they were a decade ago. The number of internet users is estimated to triple from 80 million in 2010 to 235 million by 2015. Of these, nearly 7.4 million are shopping online from the top 15 cities alone. And in contrast to content portals in the dotcom era, today's crop of ecommerce companies are selling real goods and services online that customers are paying money for.  But in the rush to get an early share of this rapidly expanding pie, investors are driving up valuations of e-retail startups that some argue could lead to a dangerous bubble. Flipkart, for example, was able to raise additional capital by selling less than 10% of its equity, valuing the company at about $300 million. Typical valuations depend on the product mix. So in a lowmargin business like travel, it can be 1-2 times revenue and very early stage e-retail companies can be valued at five times revenue.  Such scepticism comes because of the huge gaps in the business model. "Logistics is still a black hole," says Jacob Mathew, managing director of Mape Advisory Group, an investment banking firm that tracks the sector. "If they spend . 60-70 to deliver each book they sell, they are losing money on every sale," he adds. But Subrata Mita of Accel Partners, an investor in a clutch of ecommerce firms including Flipkart and apparel e-retailer Myntra, believes that what is important now is the opportunity. "The total is likely to be very large, and therefore many players, even some that haven't even started yet, are likely to succeed."  Online travel has dominated the internet commerce industry in India, accounting for nearly 80% of the . 46,000-crore market, according to a report by the Internet and Mobile Association of India. But as consumers begin to buy everything from books to electronics, clothes and consumer goods online, the share of retail ecommerce currently at about 8% will grow to $20 billion in the next five years.  But the real growth that online retailers are betting on in India is an increase in buying in smaller towns and cities that have no access to modern retail. "The opportunity here is not to replace offline retail but to just deliver products to first-time customers," says Sandeep Singhal, co-founder of Nexus Venture Partners, which is a repeat investor in group-buying portal Snapdeal.com.

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THUMBS UP TO MODERN RETAIL:

Future Group's Private Brands Steal The Show

Retailers' own brands are making rapid gains across consumer product segments in the booming modern retail industry, weakening several established brands' power to negotiate lower trade margins. 

Leading the charge is the country's largest retailer Future Group, whose private brands have been outselling some of the country's best-known brands in select categories across 200-plus Big Bazaar and Food Bazaar outlets. 
Private brands already account for close to 7% of modern trade sales in India, compared to 1% in China, according to market researcher Nielsen's latest survey that covers over 50 countries. 
"The private label phenomenon has leapfrogged in India compared to other Asian countries for many reasons: the value conscious Indian shopper, their familiarity and comfort with unbranded/ generic products, and the focus on quality of private label products on behalf of the retailers," says Dipita Chakraborty, executive director for retail and shopper practice at Nielsen. 
The development will impact the bargaining power of marketers such as Reckitt Benckiser and Cadbury who have had a face-off with big retailers over margins. "This is worrisome.... Very soon, large retailers will call the shots. It has already started happening," head of a Delhibased maker of consumer goods said on condition of anonymity. 
In Big Bazaar stores, private labels such as Clean Mate and Tasty Treat outsell national brands such as Domex, Pril and Bambino, and own brands lead the sales chart in at least four product segments (see chart). 
Future Group had boycotted chocolate maker Cadbury in 2008, and the following year it boycotted cereal maker Kellogg's brands across its Food Bazaar and Big Bazaar stores, both demanding higher business margins. 
It stopped fresh orders from Reckitt Benckiser, maker of Dettol soaps and Harpic toilet cleaner, in February this year after the marketer slashed retailers' margins to 14% from 16% on some of its products to partly offset rising input costs. The issue was resolved two months back with Reckitt products back on Big Bazaar and Food Bazaar shelves. 
OTHER RETAILERS STRUGGLE 
Largely Future Group is fueling growth in private brands, while others have yet to crack the private label space. Reliance Retail and Aditya Birla Retail's More have said they will slow down and consolidate their portfolios. More has already removed personal care products from its private brands. 
Future Group Chairman and MD Kishore Biyani says customer acceptance and repeat purchases are what is driving its private brands. "We are working hard on our private brands," he says. 
Based on information shared by Nielsen, Future Group president of food and FMCG, Devendra Chawla, says that Future group's own brands grew 52% last year while private brands in modern trade grew 19%. 
"Unlike in the West, where retailers brands started decades later than national brands, in India, we are participating in new age categories, so we can be significant players in driving consumption," Chawla says. "Modern trade is a catalyst and incubation ground for categories like corn flakesand hand washes, so we are placing big bets on these brands," he adds. 
Future Group recently extended its Sach brand to hand wash. 
Industry experts, meanwhile, point out private brands' share is miniscule in absolute numbers. "Actually the base of private brands remains small, which is why their growth looks impressive," says retail industry veteran and consulting firm Wazir Advisors MD Harminder Sahni. 
Retailers sell private labels (or store brands) to consumer at prices 10-20% lower than national brands because retailers don't incur overheads like marketing and advertising costs. 
Pricing depends on the category — in some low-involvement categories like toilet cleaners private brands are priced cheaper, but in others like hand washes they are costlier than established ones. In developed markets, there are many examples that reiterate the clout of retailers.