No FDI restriction in segment; other players increasing presence in $150 bn market.
Tesco Plc, the world’s third largest retailer which had been looking at entering India for some time, has put off its plans to set up cash-and-carry (wholesale) stores in the country for now, according to sources in the know.
The UK’s largest retailer, with revenues of £67 billion , is currently focusing on its existing franchise agreement with the Tata-run Trent. It provides back-end support to Star Bazaar hypermarkets run by Trent, in terms of inventory and supply chain management, IT solutions and so on. “Tesco is focusing on setting up warehouses and back-end infrastructure for the Star Bazaar stores run by Tatas. They are not setting up any cash-and-carry stores as of now,” said a person with knowledge of the UK-based company’s plans.
In an emailed response, a Tesco spokesman said: “We are very happy with our current business model in India. We said earlier this year we had decided not to progress with the opening of a cash-and-carry store in Karnataka for now and instead focus on developing our franchise arrangement with Trent and wholesaling products to the Star Bazaar Stores.”
|TESCO IN INDIA
* Tesco HSC, its support centre in Bangalore, goes live in May 2004
* Announces plan to enter Indian cash and carry, and franchise agreement with Tata-run Trent, in August 2008
* Sources goods worth £270 million from India
* Looking at entering Indian retail market once multi-brand opens to FDI
Earlier this year, the Karnataka government refused to grant a licence to Tesco to sell agricultural produce, including vegetables and fruit, due to pressure from traders.
After that, Tesco had said it was unlikely to set up its first store in Karnataka but wanted to explore other options, including Maharashtra. But, it may not go ahead with the wholesale plans in other cities as of now, according to the person quoted earlier.
Tesco, which announced its ambitious plans to set up cash-and-carry stores in India and a franchise agreement with Trent in 2008, planned to set up its wholesale stores in Mumbai first and then in cities such as Delhi and Bangalore and use a “hub and spoke” distribution network. It had planned to invest nearly Rs 500 crore in the venture. “Cash-and-carry stores require large investments and time. It is a slow process. It will happen later,” said the person.
Tesco, which runs 5,380 stores in 14 markets around the world, also has two other operations in India — sourcing and a global support centre in Bangalore.
It sources goods worth £270 million from India and has a support centre called Tesco Hindustan Service Centre in Bangalore. The centre employs more than 4,500 people, who develop solutions for Tesco’s stores worldwide. The government has suspended its decision to allow 51 per cent FDI in multi-brand retail. There is no FDI restriction in cash-and-carry ventures.
While Tesco has put its plans on hold, other global players such as Walmart, Carrefour and Metro are steadily increasing their presence in the $150 billion Indian cash-and-carry market. Germany’s Metro, one of the first entrants, plans to open 50 stores in the next four-five years (it runs eight already). The US-based Walmart, which has a tie-up with Sunil Mittal’s Bharti Enterprises, plans to open 20 wholesale centres in the next two years. Walmart, which opened its first store in 2009, runs 14 cash-and-carry stores in the country.
French retail major Carrefour, which opened its first cash-and-carry centre in December 2010 and the second in Jaipur last month, wants to open a dozen more in the near future. A retail consultant, who works with global retailers, said it would not be correct to compare different retailers in terms of their expansion plans.
“Every company has its own strategies, depending on its goals. Despite the slowdown in the past couple of years, Tesco has gone to the US, a very competitive market. They need a lot of resources for that,” said the retail consultant, who did not wish to be named in the report.
“A lot of things have happened in the past three years. Markets have gone up and down. Companies need to revise their plans accordingly,” he said.