Tesco sets up shop in India, finally

Two years after it ended joint venture talks with the Bharti group, the UK’s largest retailer Tesco today announced it was going solo in the Rs 1,500-crore cash-and-carry sector in the country. The firm would invest nearly Rs 485 crore in the next two years.

Tesco is also simultaneously signing an exclusive franchise agreement with Trent, the retailing arm of the Tatas. The agreement will give Trent’s hypermarket chain, Star Bazaar, access to Tesco’s supply chain, computer systems and inventory and infrastructure management. Trent will pay a “nominal fee” to Tesco for using its services.

Tesco unveiled its plan a year after Wal-Mart, the world’s biggest retailer, signed on Bharti for a wholesale joint venture. Wal-Mart and Bharti aim to have their first outlet in business by the end of this year to meet a goal of opening 10 to 15 wholesale stores in seven years.

Tesco will set up its wholesale stores first in Mumbai and then in cities such as Delhi and Bangalore and use a “hub-and-spoke” model to expand its distribution network. However, Tesco will not supply to other hypermarkets apart from Trent.

The first such store will open by the end of the next financial year.

Trent currently has four hypermarkets — larger version of supermarkets — with plans to grow to 50 stores over the next five years. In September 2007, Trent inked a deal with Benetton of Italy, under which Trent would be the exclusive franchisee for one of Benetton’s premium brands Sisley. Sisley has seven stores in the country.

For Trent, which also runs Westside, an apparel chain, and Landmark Books and Music, the tie-up is expected to boost the expansion plans of Star Bazaar.

“Tesco has many more years of retail experience than us in IT systems, understanding customers, processes and so on. India is a hugely diversified market and the association will be of great help to us,” Noel N Tata, managing director of Trent, said.

Asked why Tesco is not opting for an equity alliance with Trent, Philip Clarke, director, Europe and Asia, Tesco, said: “We are doing 100 per cent ourselves. It shows that we are totally committed to it. We will build our system and people will understand that in due course of time,” he added.

For Tesco, the entry is expected to add to its existing sourcing capabilities in the country. Tesco already sources over £170 million worth of Indian products each year, with sourcing offices in Delhi, Bangalore and Tirupur. It also employs nearly 3,000 Indian staff at its Hindustan Service centre in Bangalore, providing IT, financial and business services to the entire Tesco group.

Terry Leahy, chief executive officer of Tesco, said the deal gave the company access to another of the most important economies in the world. “Our wholesale cash-and-carry format will bring improved value, range and service to thousands of Indian businesses,” he said.

The UK company has shops in emerging markets from Turkey to Malaysia and generates more than 25 percent of sales outside Britain.

Trent surged Rs 41.95, or 8.4 per cent, to Rs 541.20 on the Bombay Stock Exchange today. The gain was the biggest in more than seven months. Tesco shares also rose in London.

Germany’s retail giant Metro has opened its wholesale store in Bangalore and Mumbai and announced other stores in the north and eastern parts of the country. Carrefour, the world’s second-largest retailer based in France, is also planning its Indian foray in 2009 from metros such as New Delhi, Mumbai, Bangalore and Chennai.

Carrefour is said to be talking to many Indian companies, including Delhi-based Parsvnath, and is expected to announce a tie-up soon. The sector has seen the entry of domestic retailers such as Future Group, Reliance, Wadhawan Group among others, in recent times.