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Wholesale interest

Suman Layak     August 21, 2008

After Walmart, it’s the turn of another global retailing giant to dip its toes into the domestic market. So far foreign chains that have set up shop in India include Metro of Germany, Dairy Farm International of Germany, Shoprite of South Africa and Spar of The Netherlands. Last fortnight, it was the turn of Tesco to announce its India plans.

Trent’s Tata: His company has a tie-up with Tesco

 Who’s in, and who’s not

There are still many more waiting to take the plunge.

Companies that are already in India or have announced plans
Dairy Farm International (Hong Kong), Metro (Germany), Shoprite (South Africa), Spar (The Netherlands), Wal-Mart (USA), Tesco (UK)

Companies that may come tomorrow
Aeon (Japan), Ahold (The Netherlands), Auchan (France), Ava (Germany), Carrefour (France), Casino (France), Family Mart (Japan), Intermarche (France), Jeronimo Martins (Portugal), Leclerc (France), LIDL & Schwarz (Germany), Makro (The Netherlands), Migros Turk (Turkey), Rewe (Germany) Seven & I Holdings (Japan), Tengelmann (Germany) Based on a PwC study on global retailers’ presence in emerging markets

Indeed, foreign retail majors are girding their cummerbunds firmly around their loins for the India play. They’re looking at various entry strategies that will factor in the restrictions on international players— currently foreign direct investment (FDI) is permitted only for singlebrand retailing.

Whilst cash and carry (or wholesale) seems to be a popular way to begin, sourcing is also another big attraction for the global giants. India is the second most favourite sourcing destination for global retailers, according to a PricewaterhouseCoopers study.

Tesco announced its India entry through a 100 per cent cashand-carry venture and a tie-up with Tata group company Trent Ltd for supplying know-how for its chain of hypermarkets, called Star Bazaars.

A Bharti-Wal-Mart spokesperson told Business Today that the Bharti-Wal-Mart joint venture is ready to launch its first cash-and-carry store in early 2009. And last fortnight, British supply chain specialist Wincanton announced a joint venture with Reliance Retail to service the latter’s supply chain.

Says Philip Clarke, Director, International Division, Tesco: “We have made no secret of our wish to enter and have had a team here for three years studying the market.” He adds that the company currently has no plans for front-end retail yet, simply because it isn’t permitted to do so. “Retail is what we do best.

However, we respect the laws in every market we operate in,” adds Clarke. Trent Managing Director Noel Tata says the arrangement with Tesco will allow it access to technology and knowledge of retail operations that it has gained over the years and Trent will also be the first customer of Tesco’s Cash & Carry business in India.

Tesco will invest £60 million in setting up three cash & carry hubs in India in the next two years. The company has a hub-and-spoke plan whereby the three hubs will be connected to smaller cash & carry stores located closer to major markets.

Interestingly, while Tesco plans to go down the chain with smaller cash & carry stores, the Bharti-Wal-Mart joint venture is working up the other direction and has already set up a distribution centre in Chandigarh. The Bharti-Wal-Mart spokesperson says: “We have already opened a distribution centre at Banur near Chandigarh and we expect to open similar distribution centres each catering to facilities located within a distance of 100-150 km. These distribution centres will service both the cash-and-carry stores as well as large retailers like Bharti Retail.”

Tesco’s Clarke says that India will also be a major sourcing hub for the company. He recalls how the first product that carried the brand name Tesco was Indian tea way back in 1924. Clarke adds that eventually the company will work with suppliers in India and help them become global suppliers to not just Tesco but other retail companies too. Echoing the views on the Indian potential for supplying to the globe, the Bharti Wal-Mart spokesperson says: “Since 2005, we (Wal-Mart) have been sourcing $400-440 million worth of goods per annum from India. We believe that the scope for procuring from India for our global operations is huge.”

It’s still early days for the global retail majors, none of which has a fully rolled out pan-India presence yet. But for that to happen would appear to be only a matter of time— and a matter of a few policy changes.

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