FMCG companies hail Wal-Mart deal

Domestic FMCG players are eagerly looking forward to the Bharti-Wal-Mart joint venture. The initial welcome is significant as retailing giant Wal-Mart is known to use its enormous clout to squeeze suppliers' margins and is feared globally by most consumer goods companies.

Amit Burman, vice-chairman, Dabur India, said his company was already exploring options of a tie-up with the giant.

"The Bharti-Wal-Mart entry is a positive step. This development will be helpful for the FMCG industry," he added.

"The tie-up is a positive step for the industry. This development will give an impetus to business growth," said Hoshedar K Press, president, Godrej Consumer Products.

Others, such as the country's largest consumer goods company, Hindustan Unilever (HUL), have been preparing for the US retail giant's entry for sometime now.

Early this year, HUL for instance, sent its executives to get trained at Wal-Mart. Industry experts attributed the company's early moves towards using modern format retail to its advantage, in a manner that befits the company's massive reach in unorganised retail space in India.

Globally, its arch-rival Procter & Gamble had initially staged a march over HUL's Anglo-Dutch parent, Unilever when it came to managing large format retail sales.

Company executives had earlier told Business Standard that HUL would use the knowledge gained from Wal-Mart not only to perfect its own act in India, but also transfer knowledge on retail best practices in developing organised retail in India.

HUL's main objective: forge a stronger relationship with all retailers using parent Unilever's relationship with large global retailers. Unilever, for instance, was chosen as retail giant Wal-Mart's best supplier in 2006.

But will FMCG giants be forced to cut prices dramatically to supply Wal-Mart, as the retail major is known to squeeze its suppliers' margins globally. Indian FMCG heads were not sure that would happen in the immediate future. They would rather adopt a wait-and-watch attitude.

"Margin in our sector is the function of the size of business transaction. Whether Wal-Mart is able to repeat the same trend as it did in the US, we will have to wait and watch," said Press.

Others felt that Bharti-Wal-Mart will operate at the same margin as the other players. "Margins are very competitive today. Reliance Retail and Foodworld are looking at a margin of 18-19 per cent. We believe that Wal-Mart will also be looking at the same," said Burman.