The Euro 25-billion Swedish furniture giant IKEA would make history if it decides to enter the Indian market without its signature cafes, restaurants and meat balls. Days after the Foreign Investment Promotion Board (FIPB) struck off 18 product categories out of the 30 proposed by IKEA, the company said the chain did not operate stores without the cafes and restaurants in any market across the world.
IKEA has over 300 stores across around 40 countries.
FIPB approved the Euro 1.5 billion investment proposal of IKEA earlier this week, but with many conditions. The company said it was “internally reviewing the details of the latest decision from FIPB….”
Arvind Singhal, chairman, Technopak Advisors, a leading retail consultancy, said the FDI policy only distinguished between single brand and multi-brand retail. But the latest development is giving an impression that the government is looking at “single category retailing rather than single brand retailing”. He was referring to the FIPB removing from the list of what all IKEA can do in India. The excluded list includes home and office use products, solutions, fittings, furnishings and accessories including stationery; textile products including apparels and fabrics; toys, books and gadgets; consumer electronics and accessories, food and beverages to be served at the IKEA restaurants and café to customers in the IKEA retail stores, etc.
The chain has been permitted to sell furniture products, which is its core business, along with knocked down furniture and accessories related to furniture, cushions, pillows, rugs, mattresses, quilts, curtains, window shades, blinds, electrical and kitchen utensils, etc. Besides the other restrictions, FIPB has also recommended that no activities falling within the purview of NBFC (non-banking financial companies) activities will be conducted by the applicant. That would imply that IKEA cannot offer any finance scheme to its customers.
Even as cafés and restaurants as well as the struck off items may not contribute significantly to the chain’s revenue, it is about offering a complete experience to the customers, Singhal pointed out. Swedish meat balls, for instance, are IKEA’s signature products, and the company may not be willing to operate stores in India if it is not permitted to sell those, he argued. “Every brand has its unique way of doing business,” according to Singhal. He asked, “can a cinema hall run without selling pop corn and colas”.
But a government official argued that “concessions and adjustments are bound to be made on both sides.” IKEA may decide to tailor its outlets accordingly, he added.
IKEA, in its second coming, had made its application to the DIPP on June 22. It had earlier decided to drop the plan due to the FDI restriction in the country as the chain wanted to be on its own with 100 per cent ownership, rather than diluting its brand with a partner. The IKEA stores are expected to occupy as much as 100,000 sq ft of space each.