India a bright spot for Tesco

UK-based retail chain's India operations have registered highest growth in like-for-like sales

UK-based retail chain Tesco’s Indian operations seem to have recorded the highest growth in its universe in terms of like-for-like (LFL) sales. But, Tesco India’s LFL growth has not been higher than that of many domestic hypermarket chains.

Stores of Star Bazaar, a joint venture (JV) between Tesco and Trent in the country, posted an LFL growth of about five per cent in March quarter of FY16, said a source in the know.

LFL growth refers to sales growth coming from stores, which are in the business for a year or more. It is a vital yardstick to ascertain the performance of a retailer as it does not include additional sales growth coming from opening new stores.

According to a 2015-16 presentation of Tesco, it saw LFL growth of 0.9 per cent in the UK in the fourth quarter of FY16, 4.1 per cent in Europe, and 3.5 per cent in the whole of Asia.

An e-mail sent to Tesco spokesperson in the UK did not elicit any response.

Retail experts attributed this growth to a lower base and conversion from unorganised to organised retail in the country.

“India is always a high LFL growth market among international markets. Apart from high economic growth, a large portion of market shifting from traditional to modern retail,” said Biju Kurien, member of advisory board of LVMH group’s L Capital Asia and former chief executive, lifestyle at Reliance Retail.

Organised retail accounts for seven per cent of the total Indian retail market of $600 billion, but is expected to become 15-20 per cent by 2030. India has jumped 13 positions from last year to rank second among 30 developing countries this year on ease of doing business, according to consultancy firm AT Kearney.

“Despite challenging laws and business economics, international retailers have come here due to growth opportunities,” Kurien said.

Raman Mangalorkar, chief executive at Atom Data Lab, a data analytics firm, and former head of consumer and retail practice for Asia-Pacific at AT Kearney, said: “Their (Tesco's) base is low in India and they can grow. India is a strategic market for growth."

Tesco has around 6,900 stores across the world and operates in 11 countries.

In 2008, it signed a franchise agreement with Trent Ltd, part of the Tata group, to supply Star Bazaar with exclusive access to its retail expertise. In 2014, it signed a 50:50 JV with Trent-owned Trent Hypermarkets to run stores under the ‘Star’ banner.

The JV operates about 20 stores under the Star banner now.

In comparison, Spencer’s Retail posted like-for-like growth of seven per cent, Shoppers Stop-owned Hypercity saw LFL growth of 4.8 per cent.