BackAuchan, Max Hypermarket part ways over FDI compliance issues
The split was on account of the difficulty in complying with India's foreign investment rules and strategic differences between the partners
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Mumbai: Max Hypermarket India Pvt. Ltd, a part of the Dubai-based Landmark Group, and French retailer Auchan group, have ended their partnership, which is the latest casualty of India’s foreign investment rules.
The split was on account of the difficulty in complying with India’s foreign investment rules and strategic differences between the partners.
Max and Auchan entered a licensing agreement in August 2012 under which Max Hypermarket would operate the Auchan Hypermarket chain in India. Auchan now has 13 hypermarkets spread over 6,39,000 sq. ft in Bangalore, Coimbatore, Gurgaon, Mangalore, Hyderabad, Delhi and Pune, the Max website said.
Following changes in foreign investment norms in supermarkets and hypermarkets, the two companies looked at creating a joint venture, but failed because some of the existing stores would have had to be excluded from the joint venture, said the company statement .
“Max Hypermarkets and Groupe Auchan continued deep into 2013 to look into the possibilities of creating a joint venture to facilitate Groupe Auchan investment in India, which could comply with Indian FDI regulations. Despite their best efforts, the parties could not facilitate this proposition," Max said in a statement. “Therefore, by common agreement, the 13 Max Hypermarkets will no longer operate under the Auchan banner by January 2015 at the latest."
“There have been differences between the two companies strategy for a while now as the French retailer wants to have a pan India presence whereas the Landmark Group is focused on the South," said a person familiar with the development while explaining that these differences have finally led the two companies to part ways. Auchan could now enter India through another partnership, this person added, asking not to be identified.
The joint venture planned to open 80 stores by 2015 in Bhopal, Mohali, Indore, Chennai, Vishakapatnam, and Chandigarh.
Max is responsible for the entire business operation from capital expenditure to day-to-day operations. It also has management control.
Auchan provided knowledge transfer and information on best practices in international retailing and technical expertise to ensure that the brand is being accurately represented, while ensuring that the local partner retains their financial independence to deliver the best solution in each market, said the company website.
This is the second partnership change for Max in India. In May 2012, Max parted ways with Dutch grocery retailer Spar International.
The Dubai-based retailer, however, is committed to the growth and development of the supermarket business in India and continue its investments under a new brand name, said the company’s statement. “The value retail segment is facing difficulties and has seen a drop in its growth rates with retailers shrinking the existing space under hypermarkets or changing their strategy," said Rachna Nath, leader, retail and consumer, PricewaterhouseCoopers Pvt. Ltd, a consultancy.
For instance, Shoppers Stop Ltd, which operates HyperCity stores chain, has reduced the space of some of its shops. For instance, the HyperCity in Amritsar was shrunk from 150,000 sq. ft to 50,000 sq. ft last year. The retailer has also gone slow on expansion as it looks at profitability and launched a compact format of 30,000 sq. ft, deviating from its original concept of large stores spread over 100,000 sq ft.
“This year’s objective and next year’s objective is a turnaround the business,"Govind Shrikhande, customer care associate and managing director, Shoppers Stop, said in an interview in July, adding that the company plans to add only two hypermarkets this year against the four last year as it looks at becoming operationally profitable.
Across the sector, Reliance Retail Ltd, the retail unit of conglomerate Reliance Industries Ltd has reduced the number of its Reliance Marts, its hypermarket format from 22 a couple of years ago to seven now, said the first person familiar with the Auchan development. Most retailers in the hypermarket format in India are yet to return profits, this person added.
Meanwhile, Reliance Retail is focusing on the wholesale cash and carry format called Reliance Market and has 32 of these as of 31 March as compared to one a year-ago, said a company spokesperson.
The retail industry in India has seen its growth rate drop to a decade low in the last financial year as consumers cut back on discretionary spending. The industry is estimated to be worth around ₹ 31 trillion in 2013-14. Modern or organized retail is worth about ₹ 2.4 trillion.
Auchan is one of the world’s largest hypermarket chains with 616 hypermarkets in 12 countries in Central and Northern Europe, Russia, and China. The company has a €44.4 billion turnover.
The Landmark Group is one of the largest retail conglomerates in the Middle East and India with a turnover in excess of $5.2 billion and a presence in 20 countries through over 1200 stores, according to the company’s website.
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