Jim Prevor’s Perishable Pundit, November 28, 2006
Wal-Mart announced an agreement with Bharti Enterprises, a company based in India, to enter the Indian market via a joint venture. Probably because the law in India prohibits foreign ownership of department stores, a plan was devised whereby Bharti will actually own the stores and Wal-Mart will provide the logistics, distribution and sourcing along with the store concepts.
The announcement followed Wal-Mart’s disclosure that Wal-Mart’s extensive price-cutting efforts did not boost November numbers domestically as same store sales are expected to fall 0.1% in November, the worst performance in a decade.
One wonders if Wal-Mart couldn’t make a virtue of necessity and pick up the model they are going to use in India and franchise the Wal-Mart concept, Neighborhood Market, or some variant thereof in urban areas.
Look at all the problems it would solve:
- From a “big is bad” enemy of the people, Wal-Mart would be perceived as providing entrepreneurial opportunities for people all over the country. This would provide upward mobility for current Wal-Mart employees and an opportunity for inner city residents, particularly ethnic minorities, to own their own business.
- Real estate difficulties in getting big box stores would be avoided as these smaller stores, owned by community residents, would be easier to site and less controversial.
- Wal-Mart’s political difficulties would be easier to overcome, as the owners of these franchises would be de facto lobbyists for Wal-Mart in congressional districts where Wal-Mart has little influence right now.
- Operational issues that might make it difficult for Wal-Mart to successfully operate in inner cities would be overcome by having owner/operators in the stores.
- Product and merchandising relevancy, particularly to various ethnic groups, would be gained from the franchisees. Basically all good product ideas at McDonald’s grew out of franchisee suggestions. This learning could be carried over into company owned stores.
Wal-Mart could develop the concepts, acquire the real estate, build out the stores, provide marketing support, handle procurement, distribution and logistics. The store owners provide community knowledge and a willingness to get their hands dirty. Unlike the India deal, we would suggest franchising only to individual operators.
They would not be the first to franchise. Competitors such as Supervalu’s Save-A-Lot make it a cornerstone of their success. Become a Save-A-Lot retailer here.