Interview Transcript

Your client is WholesaleCo (a big box retail chain) and it wants to enter India. They are considering entering the Indian market, and you have been hired to determine whether they should enter the Indian markets or not.

To clarify, the client is a big box retail chain, currently operating overseas and is currently planning to enter the Indian market and we have to advise them whether it will be favorable for them or not.

Yes, and in case it is favorable, also suggest a strategy to enter the Indian Market.

I would first like to learn more about the client and its overseas capabilities.

WholesaleCo is an American multinational corporation which operates a chain of membership-only big-box retail stores. As of 2020, WholesaleCo was the third largest retailer in the world and has been in business for over 45 years.

Prior to estimating the target market WholesaleCo would be able to cater to in India, I would like to know the reason behind picking India by the client.

India has been chosen due to various positive factors including growing middle income population, increased consumerism, a price driven market and positive macroeconomic trends. You can now continue with your estimation of the target market for WholesaleCo.

Considering that the Indian population is price sensitive and that WholesaleCo stores are generally located in urban areas, we can consider the people living in metropolitan and non metropolitan metro cities earning a monthly income of more than 20000 as our main target audience. As people generally buy in bulk at wholesale shops such as WholesaleCo, people having a larger family size are more likely to go there and would also have a higher average order value. The penetration rate of such a venture can be considered at 12% given the resources and brand image of WholesaleCo and lack of a consistent wholesale supply network by relatively smaller competitors.

This gives WholesaleCo a target population of 69 lakh people which would be visiting its stores once a month to buy goods every year imputing a target market of Rupees 1421 crores.

Yes, the target market is promising. What are the costs that you can identify which will have to be undertaken by WholesaleCo as it sets up in India?

I can think of some fixed costs that are rental lease payments, salaries, electricity, insurance, advertising; one time costs such as R&D costs, and some variable costs that include cost of goods sold, wages, transportation and warehousing costs.

We do have some data regarding some of the cost heads you mentioned and the revenue projections for the first year. Based on that I would like you to assess whether a shift to India will be economically viable for WholesaleCo or not.

Based on industry standards, I’d like to assume the revenue growth rate for WholesaleCo at 8%. Does this assumption seem fair to you?

Yes, you can continue with this assumption.

According to my calculations, assuming revenue growth rate at 8%, it shall break even in the third year and the company shall be profitable by the end of year 3. Therefore it will be economically viable for WholesaleCo to set up in India.

Thank you for that analysis, I’d further like to ask if WholesaleCo were to set up here, how would you define its value chain?

The primary activities of WholesaleCo can be categorized into

1. i) Inbound Logistics, which includes receiving shipment of products, storing inputs, cross- docking/depot;
2. ii) Operations, including testing, assembling, allocation of goods, packing and shipment to warehouse stores

iii) Outbound Logistics, including warehousing, scheduling, order processing, invoicing, transporting and delivery to destination

1. iv) Marketing and Sales, including sales force, advertising, pricing, promotional activities, channel selection, quoting, building relations with channel members
2. v) Services, which include special services for members, warranty services, installation services and post sales maintenance

Secondary Activities can be categorized into

1. i) Human Resource Management which includes hiring, training and development, compensating, motivating and retaining
2. ii) Firm Infrastructure which includes general management, quality management, finance and accounting, legal services

iii) Procurement including buying connection with various manufacturers, negotiating prices, procedures, supplier qualification rules

1. iv) Technology Development, consisting of technology selection.

Who would you identify as Wholesale Co’s main competitors and how can WholesaleCo keep a competitive edge over them?

Currently, retail chains such as Reliance Fresh, Best Price, Metro, Pantaloons etc. can be considered as its competitors. However, WholesaleCo can maintain a competitive edge through its membership program through which it can offer special discounts to its members and build customer loyalty. Further, given Wholesale Co’s resources and brand value, it can build a network of well connected stores in areas of high footfall to remain a step ahead.

Could you also suggest some potential areas where WholesaleCo stores can be set up in India to maximize footfall?

Areas which are densely populated and not consisting of the upper class would be most preferable because they will mostly prefer ordering online. Further we can look for the areas where there is a rush, well connected with colleges and corporate offices, centrally located, has major metro stations for connectivity, near shopping and commercial hubs or even near airports. The main focus should be on nearby areas with a middle class population.

I believe that is satisfying. We can now summarize the case.

The Indian market is an economically promising one for WholesaleCo to enter into due to its growing customer demand and price sensitivity. The areas of entry such as Joint Venture, M&A or an organic entry can be further explored. It should start by leasing land in densely populated areas, containing rush, well connected with colleges and corporate offices, centrally located, containing major metro stations for connectivity, focusing more on nearby areas with middle class population and put great emphasis on its procurement costs, storage costs (warehousing, cross-docking), pricing and membership services in order to capture a good market share and ensure an efficient network of stores to enter the Indian market with.

Thank you, that was well summed up.

Case Facts

• Overview : WholesaleCo is a US big box retail chain which wants to enter India
• Geography: Price sensitive consumer market with a growing urban population and a target market of Rs 1421 crore
• Customers : Urban Population having a monthly income of more than Rs 20000