The Tata group is in talks with Woolworths Ltd, an Australian retail company, to set up supermarkets and hypermarkets in an attempt to widen its own retail business and enter a segment that accounts for 60-65% of India’s $350 billion (Rs14 trillion) retail market, according to industry body Retailers Association of India (RAI).
One of the group’s company, Infiniti Retail Ltd, recently launched the Croma chain of consumer electronics stores in association with Woolworths, which is a technical partner in the venture. (Woolworth has no equity stake in Infiniti.)
“We will enter the food and grocery retail business,” said R.K. Krishna Kumar, a director on the board of Tata Sons Ltd, the principal holding company of the group. “We are examining this and Woolworths will most likely be our partner.”
According to people familiar with the development, a team from Woolworths was in India last month to study the retail market. The Tatas and Woolworths, these people said, are looking to open stores in the metros and will follow that up with stores in other cities.
The Tata group already has a presence in the supermarket business through Star India Bazaar, which is run by group company Trent Ltd. Trent also owns the Westside and Landmark chains. Tata Chemicals Ltd recently announced a joint venture with European fresh produce firm Total Produce for a food and grocery distribution business.
A mere 1.3% of food and grocery sales in India happen through supermarkets and other outlets that are part of organized retail; business houses such as Reliance Industries Ltd and Aditya Birla Group are hoping to change this as they make big investments in the business. Bharti Enterprises Ltd too has announced a retail foray with Wal-Mart Stores Inc. joining it as a partner for the back-end or supply business. Woolworths has around 700 supermarkets in Australia, according to its website, and is the country’s second largest employer. It announced sales of A$16,849.9 million for the six months ended 31 December 2006, up 9.7% from the year-ago period.
“Food and grocery retailing normally takes around three to five years to break even and scaling up becomes difficult if the retailers lack the wherewithal,” said Gibson Vedmani, chief executive of RAI. “Since both Woolworths and the Tatas have good investment capabilities, they can sustain and grow faster.”
Given the largely unorganized nature of food retailing in India, firms entering the business have either hired foreign retail industry executives or forged alliances with foreign retailers or both. Indian laws do not allow foreign retailers in multi-brand retail, although they are allowed to operate wholesale cash and carry businesses.
Despite the entry of all these firms, the Indian market is unlikely to get crowded, said a consultant. “There is a long way for the market to be saturated,” said Hemant Kalbag, who heads the retail practice at A.T. Kearney, a management consulting firm .“For instance, Shanghai has around 120 hypermarkets, while Mumbai has only five or six. So, there is a room for at least five or six major food retailers.”