London / Mumbai: The world’s No. 3 retailer, Tesco Plc., said it plans to set up shop in India with a wholesale cash-and-carry business and will help Indian conglomerate Tata group to grow its hypermarket business.
The expansion into the world’s second most populous country is the latest by the British supermarket group, which last year opened stores in the US and last month
made a big push into banking.
Step forward: Trent Ltd managing director Noel Tata (left) and Tesco international IT director Philip Clarke shake hands at a press conference in Mumbai on Tuesday to announce their cash-and-carry business deal. Photograph: Abhijit Bhatlekar / Mint
It follows a similar step by US rival Wal-Mart Stores Inc., which has teamed up with India’s Bharti Enterprises Ltd, as the world’s top store groups seek a foothold in India’s $350 billion (Rs14.7 trillion) retail industry, amid forecasts it could double in size by 2015. Foreign multi-brand retailers are currently limited to wholesale or licence and franchise arrangements in India.
Tesco international and IT director Philip Clarke told reporters that the firm was keen to set up its own retail business in India, should the legislation change. “If and when it changes, our wholesale business and the agreement with the Tata group gives us great experience of the Indian marketplace and consumer,” he said on a conference call.
Arvind Singhal, chairman of retail consultancy firm Technopak Advisors Pvt Ltd, said it was time the government opened up the retail sector to foreign players. “By simply having such tie-ups, foreign retailers are anyway participating in India,” Singhal said.
BlueOar Plc. analyst Greg Lawless welcomed the Tesco-Tata deal.
“It’s a sensible deal. They’re not betting the farm on it,” he said. “It gets them entry into the market and that’s what it’s all about. But it’s a very, very long-term one.”
Tesco said it would make an initial investment of up to £60 million (Rs483 crore) in the cash-and-carry business over the first two years.
It plans to open its first outlet in Mumbai towards the end of next year, with further distribution hubs in New Delhi and Bangalore that will support a network of smaller cash-and-carry stores supplying thousands of small retailers and restaurants.
Under the deal with Tata group’s retail arm Trent Ltd, Tesco will, for a fee, provide its retail expertise and technical capability to support the development of its hypermarket business, Star Bazaar.
Trent currently has four hypermarkets, with plans to grow to 50 stores over the next five years. The stores will be supplied by Tesco’s cash-and-carry business.
Trent shares jumped more than 18% in a weak Mumbai market on Tuesday, closing at Rs545.85, up 10% from the previous close. Tesco shares, which have outperformed the DJ Stoxx European retail index by 5% this year, were steady at 393.9 pence, giving a market value of about £30 billion.
Tesco’s Clarke denied the biggest UK retailer was over stretching itself with its expansion plans, saying the move into India had been carefully thought out with teams researching in the country for the past three years.
India has long been viewed as a potential gold mine for international store groups as living standards rise and the middle class grows.
Less than 5% of the industry is currently in the hands of large, modern retailers, with protests by traders and concerns about job losses slowing the expansion of even large local groups such as Reliance Retail Ltd, a unit of India’s most valuable firm Reliance Industries Ltd.
Tesco will compete with the cash-and-carry operations of Germany’s Metro AG and Shoprite Holdings Ltd, as well as Wal-Mart’s venture with Bharti. France’s Carrefour SA has also said it plans to enter the wholesale market. Britain’s Marks and Spencer Group Plc. in April formed a venture with Reliance Retail for stores to sell clothes and homeware.
Trent also runs department stores, bookstores, and manages Benetton Group’s Sisley stores in India.
The Tata group’s interests span chemicals, hotels, telecom and tea. It also owns two of Britain’s best-known businesses, steel maker Corus Group Plc. and Jaguar and Land Rover cars.
Rasul Bailay of Mint contributed to this story.