Business Opportunities in India
Tesco to enter India with cash & carry and Tata retail deal
Our Bureau
Date of posting: 14-08-08
      Tesco Plc from UK, the world's third largest retailer, has finally announced plans to set up a wholesale cash & carry business in India, and at the same time, a deal with Tata Group’s retailing subsidiary Trent.

      For the development of the cash & carry business, Tesco is committing an initial investment of up to £60 million (Rs 480 crore) in the first two years. The first cash & carry outlet would be set up in Mumbai, at the end of next year, Tesco's International Director Philip Clarke told reporters. Further distribution hubs are planned for Delhi and Bangalore, which would support a network of smaller cash & carry stores supplying thousands of small retailers and restaurants.

      In the deal with Tata, Tesco will provide retail expertise and technical capability to support the development of Trent’s hypermarket ‘Star Bazaar’. Trent currently operates four hypermarkets and plans to open around 50 stores over the next five years.

      For Terry Leahy, chief executive of Tesco, the deal would be another exciting development for Tesco, which complements entries into China and the United States. “Our agreement with Tata will enable us to share our international retail expertise in supporting Trent towards the development of their Star Bazaar hypermarket business and in benefiting Indian consumers”, he said.

      Forced by the Indian law forbidding FDI in retail operations, Tesco in its deal with Tata is following the dualistic approach of the world’s number one retailer Wal-Mart. Wal-Mart had entered into an agreement with the Indian Bharti Group to set up wholesale operations, and to support the retail operations of Bharti with know-how and technology in a franchise agreement. The difference between the two pairs is that Wal-Mart has set up a joint venture with its Indian partner even for cash & carry, whereas Tesco obviously wants to set up a 100% subsidiary, and gets access to the retail business through Trent.

      Tesco, which has already 814 stores in other Asian countries (China, Japan, Malaysia, South Korea and Thailand), has also made it clear that it is keen to set up its own retail business in India, should the legislation change. If this would happen, Tesco already would have acquired certain experience of the Indian marketplace and consumers through the wholesale business and the agreement with the Tata Group.

      After retailers Wal-Mart and Tesco have decided to enter India through the cash & carry route, thus giving competition to Germany’s Metro which is following a dedicated cash & carry strategy, the next retailer whose entry into the Indian market is awaited is Carrefour from France. Their first cash & carry and franchised retail stores could be opened in the second half of 2009, as Carrefour has confirmed to FII. Negotiations to select a franchise partner among the two or three identified have reached a final phase.

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