Tesco plans faster expansion than Wal-Mart in India

It took Tesco 21 months after the US-based Wal-Mart Stores pipped the UK retailer in its partnership talks with Delhi-based Bharti Group.

However, Tesco now looks much prepared for a faster roll out than the world’s largest retailer Wal-Mart, especially with having Tata group’s existing supermarket chain as its franchise partner and a customer.

A STEP AHEAD

India is the third market after China and Japan where Tesco is set to challenge Wal-Mart Stores

Tesco plans to open its first cash-and-carry store by December 2009, a mere 16 months after the initial announcement

Wal-Mart will open its first store in the country only in March 2009

The UK-based world’s third largest retailer, Tesco, plans to open its first cash-and-carry store by December 2009, taking only 16 months since its announcement. It has already got Tata’s four-year-old supermarket chain Star Bazaar as its customer, which plans to expand to 54 stores in the next five years from four now.

Wal-Mart, which got into a joint venture with Bharti group in November 2006, plans to open their first store by March 2009, after deferring its plan to open in 2008. That makes 28 months after their first announcement, and a year longer than what Tesco plans.

Tesco’s ability to roll out faster also lies in the fact that unlike Wal-Mart, it has decided to go alone for the wholesale cash-and-carry stores. Its partnership with Tata is only a franchise agreement for providing technology and marketing support for a fee.

"Joint ventures in general have had issues across the industries in terms of operations," said Govind Shrikhande, chief executive officer of Mumbai-based retailer Shoppers Stop.

Industry observers feel that the move by Tesco to go alone is strategically suited with India's compulsion, which doesn't allow foreign investment in multi-brand retail business. There is no restriction on the foreign direct investment in the wholesale cash-and-carry retail operations.

In fact, Tesco is considered to be relatively slower and methodical retail operator which has opted for an organic growth route while Wal-Mart is considered to be aggressive, taking an organic route wherever possible.

"It is a politically correct announcement," said Arvind K Singhal, chairman of business consulting firm Technopak, explaining that the company had shown confidence by going alone in the cash-and-carry operation.

In late 2007, Tesco entered the US to challenge Wal-Mart on its home turf. Now, India is the third international market after China and Japan where Tesco is not only set to challenge Wal-Mart but is also prepared to catch up on the opportunity lost in 2006 when its talks with Bharti failed.

Wal-Mart is often criticised for squeezing farmers’ margins and paying less to its employees to maintain "every day lower price" marketing strategy. On the other hand, Tesco is known for customer relationship.

"Their Club Card has been extremely successful," said Noel Tata, managing director of Tata’s retail company Trent. According to an estimate, half of the UK households use Tesco’s Club Card, the loyalty card of the company.

However, retail remains to be extremely sensitive to local demands. And as Shirkhnade said, "We have to wait and watch to see the most successful model."