Tesco Partners With Tata to Enter Supermarket Business in India

Tesco Partners With Tata to Enter Supermarket Business in India

Tesco Plc (TSCO), the U.K.’s largest supermarket company, plans to become the first global chain to enter India since the government allowed foreign companies to invest in multi-brand retail more than a year ago. Tesco is likely to invest about $110 million to gain a 50 percent stake in Trent Hypermarket Ltd. (TRENT), a unit of Tata Group that runs Star Bazaar supermarkets, according to an exchange filing and a statement from commerce minister Anand Sharma.The Cheshunt, England-based retailer’s decision to invest in India gives it an edge over Wal-Mart Stores Inc. (WMT), which recently ended a six-year old partnership with Bharti Retail, stalling the world’s biggest retailer’s efforts to expand in the country. Tesco’s move is likely to provide an impetus for other international retailers to enter a market that’s projected to be worth $865 billion by 2023, said Ankur Bisen, senior vice president for retail at consultant Technopak Advisors Pvt.

“Symbolically this is great news,” Bisen said in an interview from his Delhi office. “Everybody was doing a wait and watch to see who will take the plunge first, and this will send some sort of positive news in the retail space.”

While India changed laws in September last year to allow foreign retailers to own majority stakes in stores selling multiple brands, no companies had sought such licenses, partly because they considered the conditions onerous. In August, the government eased some rules governing merchandise buying, infrastructure investment and store locations, to lure global chains to open stores in Asia’s third biggest economy.

Minimum Amount

Tesco’s application will be for the minimum amount required under’s India’s policy governing foreign investment in supermarkets, according to the statement. Those rules require foreign entities to invest a minimum of $100 million, half of which has to be for facilities such as warehouses, distribution networks and refrigerated storage centers.

Foreign companies need a local partner to run supermarket chains in India. Under recently relaxed rules, such joint ventures will have to buy 30 percent of manufactured products from small- and medium-sized local businesses with less than $2 million invested in factories and machinery. Earlier rules were even stricter, defining “small and medium-sized” companies as those with investments of less than $1 million.

Tesco’s joint venture will build on an existing network of 16 stores in India’s Maharashtra and Karnataka states.

The initial investment “is not a lot of money” in the context of the retail market, Technopak’s Bisen said. “Tesco has been looking at India as a major sourcing hub and now they are looking at it as a market as well.”

Retailers selling single brands, such as Ikea and Hennes & Mauritz AB (HMB), can own stores outright in India without a local partner. Ikea, the Swedish home-furnishings chain, has said it plans to invest as much as 1.5 billion euros ($2.1 billion) to set up 25 stores in the country.

To contact the reporter on this story: Adi Narayan in Mumbai at anarayan8@bloomberg.net

December 17, 2013 4:13 pm

Tesco to test India’s retail waters with $110m supermarket venture

By Amy Kazmin in New Delhi

Tesco, the UK supermarket chain, has sought permission to invest $110m in an Indian joint venture with the influential Tata Group, the first move by a foreign retailer to set up a consumer-oriented grocery store in India.

After years of prohibiting any foreign direct investment in what it calls “multi-brand retail,” the Congress-led government decided last year to permit partial foreign ownership of supermarkets and department stores in India.

But until now, no foreign companies have moved to enter the market, deterred by New Delhi’s complex requirements for foreign-owned stores, including a rule that such shops source at least 33 per cent of their wares from small and medium-sized Indian enterprises.

Tesco, which has developed a wholesale business in India and provided technical support to Tata’s shops, has sought permission to take a 50 per cent stake in Trent Hypermarket, an arm of the Tata group, Indian officials said.

Trent operates 16 stores, variously named Star Bazaar, Star Daily and Star Market, and has plans to open another three to five stores every financial year for the next few years.

The stores will offer a wide range of items, including basic dry grocery products, fresh produce, clothes, shoes, household items such as crockery, books and magazines.

Anand Sharma, India’s commerce minister, welcomed Tesco’s move to test India’s retailing waters, and pledged support for “expedited clearances”.

“We hope this will mark a new beginning in transforming India’s retail industry,” he said in a statement. “I am sure that the other global leaders will also look at investing in India.”

Foreign retailers such as Walmart and Carrefour are keen to develop a foothold in India’s highly under-developed retail market, now dominated by millions of tiny, traditional mom-and-pop shops, pushcart vendors and wet markets.

Both Walmart and Carrefour have already established wholesaling businesses, in whichIndia had already permitted foreign investment, while France’s Auchan has a franchise agreement with an Indian company.

But despite New Delhi’s much-heralded opening to foreign ownership of consumer-oriented retail stores last year, the policy environment is still complex, with each India state government able to decide whether or not to permit such businesses within their boundaries.

The Hindu nationalist opposition Bharatiya Janata party, which draws much of its political support from the wealthy trading community, has threatened to reverse Congress’s policy of permitting foreign investment in supermarkets if it comes to power in New Delhi after parliamentary elections next year.

Trent stores with Tesco investment – which will be branded as “a Tata and Tesco Enterprise” – will initially be set up in Karnataka and Maharashtra, now under the rule of the Congress party.

Tesco’s move to set up shop comes soon after Walmart announced the break-up of its longstanding wholesale joint venture with Bharti Enterprises. Walmart has also put itsexpansion plans in India on hold as it deals with two compliance investigations.