Charlotte Mathews

Consumer Industries Editor

LAST week’s talks with the Indian government by Wal-Mart Stores international president John Menzer could herald the arrival of tough new competition to Shoprite Holdings’ recently established operations in Mumbai.

Shoprite, which has built up its expertise in developing markets in SA and Africa, operates a wholesale distribution business and a 6500m² franchised hyper, the Shoprite Hyper Mulund in Mumbai in conjunction with local partners.

The only other multinational retailer in India is Germany’s Metro, which has a distribution centre in Bangalore. But Wal-Mart and French retail group Carrefour have indicated they are interested in the country, and Menzer is believed to have been lobbying for changes to the restrictions on foreign investment in India’s retail industry.

According to the India Brand Equity Foundation, India’s retail sector is expected to be worth about $300bn by 2010, up from today’s level of about $200bn.

Irene Papadopoulos of Emerging Market Focus wrote in a recent Business Day article that India’s middle-class market comprises about 400-million people, and was the world’s fifth-largest market in terms of purchasing power parity.

The country has about 12-million mom-and-pop retailers, selling through kiosks, pushcarts, in the open air and in rural areas, and they have fought hard to keep international groups out. International retailers may operate only through joint ventures and wholesale operations at present.

In Shoprite’s most recent annual report, CEO Whitey Basson said that, despite Indian government restrictions on trading by foreign companies, "we believe the potential for the group in India is vast".

"Some indication of this potential can be gauged by the fact that Mumbai alone has 15-million residents, compared with 7-million people in KwaZulu-Natal, where we operate 61 outlets in a more strenuously contested market."

On Friday he said Shoprite had survived intense competition locally from Pick ’n Pay, and it expected to survive the entry of Wal-Mart and Carrefour in India.

"The question is more what the entry of the international retailers will do to the Indian retail market," he said. "Our problem there is a psychological one — we need to change the buying habits of the population so that they change their ratio of formal to informal buying to 50:50 or 70:30. This will happen with more stores and keener pricing."

According to a recent report in the McKinsey Quarterly, most Indians buy fresh fruit and vegetables every day from vendors coming to their doors; most chicken and fish is selected live, and sheep are slaughtered at the shop. The report says supermarkets emphasising dry goods and some fresh foods will probably be the dominant retail format, at least initially.

"Conquering the country will always be a challenge, given the problems of the supply chain and consumer readiness, as well as the prodigious complexities of so vast a market," the report says.

Basson said the group’s sales a customer at its Mumbai store were not far from expectations. At least 60% of store visitors were buying, but there was a need to convert more visitors to buyers.

But Shoprite is not going to wait to achieve these goals before it starts to expand further in India. Basson said changes in shopping habits could happen rapidly, as McDonalds’ experience had shown.

Shoprite had found there were 70 new shopping malls in India and might take good sites, he said.