US retail major Walmart’s Asia chief Scott Price has sought a meeting with commerce and industry minister Anand Sharma this month. Price plans to make a case for the inclusion of private labels under the mandatory local sourcing norms, a move that is being debated by the department of industrial policy and promotion (DIPP).
A foreign retailer interested in investing in India’s multi-brand retail sector has to mandatorily source 30 per cent of the value of procurement or products from small and medium scale enterprises, as per the extant FDI policy.
By inclusion of private labels in the sourcing clause, Walmart argues that it will be able to comply with the FDI policy. Private labels, also called store brands, are owned and sold by retailers in their stores at a lower price. They add massively to the revenue because they have no marketing and advertising cost. Domestic retailers, including the Future Group, Reliance Retail and the Aditya Birla group, also rely heavily on private label to increase their sales and margins. For instance, private labels reportedly contribute 40 per cent to Future Group-owned KB’s Fairprice sales turnover.
According to a government official, Walmart has put forward its case in a presentation made before the DIPP. In its presentation, the company argued that private labels provide great advantage to consumers in term of cheaper and quality products, and all big retailers including Carrefour and Tesco generate annual revenue of $40 billion each through private labels alone. Globally, the private labels of Walmart contributed $50 billion of the $283 billion of food and consumables revenue.
Walmart has been keen to invest in the untapped multi-brand retail segment of India though it has raised several concerns on the policy framework, including the issue of mandatory sourcing.
“The company has said that without the inclusion of private labels it will not be able to meet the mandatory local sourcing condition. According to the company, without private labels, it will be able to source only 15-19 per cent of the mandatory 30 per cent from SMEs,” the official said, adding that the department is debating the demand.