Tesco-Tata scouts for land to prop up distribution

The land buying will help Tesco meet India's norm of multibrand foreign direct investment in the segment

Trent Hypermarket, a joint venture between the Tata group and Tesco, the UK-based multinational grocery and merchandise retailer, is looking to buy land in Bengaluru, Mumbai and other cities to build distribution centres for its stores.

The land buying will help the company meet this country's norm of multibrand foreign direct investment in the segment, with $50 million (Rs 330 crore) investment in new back-end infrastructure. “Earmarked funds, temporarily parked in mutual funds, have to be utilised for the qualifying end-use in back-end infrastructure only,” the company said in its annual report for 2015-16.

The company has a little over 20 stores in Mumbai, Pune, Aurangabad and Bengaluru. Last year, it said it was looking to add 50 stores in this financial year, one of the biggest expansion plans in a single year.

The company has taken distribution centres on lease in the past and is now looking to buy properties. It said it was in the process of buying a seven-acre parcel in Bengaluru, where it will build a 140,000 sq ft distribution centre (DC), enabling it to supply goods to its stores in Karnataka. It said it was also evaluating a proposal to build similar DCs in Maharashtra, preferably between Pune and Mumbai,  and in other cities.

According to sources, the company is in talks with a land owner at Hosakote near Bengaluru and the deal could be a Rs 15-20 crore one, as rates in the area are around Rs 2 crore an acre. “If they are planning to add 50 stores, they need large distribution centres, without which the fill rates in the stores would suffer. They also need to meet FDI norms,” said a senior real estate executive who is aware of the retailer’s plans. Fill rate means the rate at which goods are supplied against a particular order.

Trent is the only company which applied for FDI in multibrand retailing and runs stores in Maharashtra and Karnataka, which had allowed foreign investment in the sector. The policy announced in 2012 permitted 51 per cent FDI in multibrand retailing and left it to each state to allow or refuse permission. Though Trent is yet to break even, it reduced its loss before tax in 2015-16 to Rs 44.8 crore, from Rs 65.4 crore a year before. The company posted a like for like growth of 8.3 per cent in FY16.

Like for like means the growth from stores in the business for  a year or more.

Regarding the 30 per cent sourcing condition, the company said this was being monitored. For FY16, it sourced 28.27 per cent of qualifying products from micro, small and medium industries. Retailers are focusing on DCs to speed supplies to stores. Recently, Ramdev's Patanjali Ayurved said it had added 1.2 million sq ft of warehousing space in 20 cities and would take it to two mn sq ft by the end of this financial year.

REALTY PLANS

• 140,000 sq ft distribution centre in Bengaluru
   
• 50 more stores in FY17