Mumbai: The Dubai-based Landmark group, which runs the Max hypermarket chain in India, has signed an in-principle agreement with privately-held French retail chain, Auchan SA, according to two people familiar with the development.
In May, Max hypermarkets and Dutch grocery retailer Spar International announced they would not renew their partnership after 31 December, 2012, as both companies pursue operations separately in India.
The Landmark group and Auchan were in talks since February to form a joint venture. However, as India is yet to allow foreign direct investment or FDI in multi-brand retail, the talks are now centered on a franchise agreement.
“The two parties are interested in working together. The terms and conditions are being worked out. It will be a franchise agreement,” said an investment banker familiar with the arrangement. He did not wish to be named.
In January, the government increased the ceiling on FDI in single-brand retail from 51% to 100% but did not review its decision on FDI in multi-brand retail.
“The agreement with Auchan will be a licensing agreement, similar to the one that Landmark had with Spar,” said a second person familiar with the development. This person, who also did not wish to be identified, added the two companies have yet to choose a brand name for the retail stores in India.
“We are in discussions with potential partners to expand the business in India. We will let you know about the developments soon,” said Ramanathan Hariharan, director, Landmark group, in an email.
Hariharan added that Max plans to open 8-10 hypermarkets a year in India.
An email sent to the Auchan group last week remained unanswered.
Auchan, a €44.4 billion by revenue company had 1,375 hypermarkets and supermarkets in 12 countries as of December 2011, and had held talks with other Indian retailers before choosing the Landmark group.
Landmark is a pure-play retail company compared with most other retailers in India that are conglomerates in the retail business. “Auchan wanted to partner with a pure-play retail company for its India entry rather than a conglomerate,” said Harminder Sahni, managing director, Wazir Advisors.
Under the licensing agreement with Spar, Max was responsible for the capital expenditure and day-to-day operations, and also had management control, while Spar offered its retailing knowhow and oversaw the implementation of best practices.
Meanwhile, Spar too is in talks with multiple partners to expand its business, the company said in May.