IndiaRetailBiz

“It’s baloney. It is driving a kind of frenzy and it is illegal for us even to go into India,” said Andrew Higginson, Director of Finance and Strategy, Tesco, at Reuters Consumer and Retail Summit a few months ago in London. However, in a fast changing strategy, Tesco, the UK-based world’s third largest, Europe’s second largest, and Britain’s largest retailer, according to a report in London’s Daily Mail, is close to finalising the appointment of a franchise partner for its retail foray into India.

After the US-based Wal-Mart and France-based Carrefour, Tesco, the world’s third largest, which operates 3,262 stores, occupies 68.1 million sq ft of retail space, and employees over 450, 000 employees worldwide, clocked £ 46.611 billion (around US$ 93 billion) in 2007 group sales.

Tesco also recently (November, 2007) made entry into the USA. In the past six months, it has set up 91 stores under the brand name of ‘fresh & easy.’ There is a divided opinion among analysts, however, on success or otherwise of their performance as further roll out of these has been halted for time being by the company.

Tesco operates its retail operations through four different formats, called, Express, Metro Superstores and Extra. While, the first two formats cater to the needs of neighbourhood and city centre shoppers, the third meets the needs of weekly shoppers. The last, a more comprehensive format offers the full range of food and general merchandise including clothing, electricals and telecoms.

It is interesting to note that although Tesco was first among the top three to initiate business parleys for India foray, it lost out to its bigger counterparts. It began talks first with Landmark of Dubai and later with Sunil Mittal of Bharti Enterprises. However, with Sunil Mittal deciding to join hands with its biggest rival Wal-Mart, Tesco had to take the back seat. While, it was unsure of legal position as regards FDI policy in India, reports kept surfacing from time to time to the effeect that country’s big business houses including Tatas, Wadias, Anil Ambani, and HDFC, among others, were seeking partnership with Tesco. These were, however, laid to rest after Higgin’s comments in Reuter’s retail meet in London.

Sir Terry Leahy, Chief Executive of Tesco, though, has always remained committed to opening in India. He had earlier stressed that the country was ”top of the list for its global expansion plans after the US, where it would open business next year.”

Mahindra and Mahindra, Bombay Dyeing and National Dairy Development Board are among the Indian conglomerates, which have been shortlisted as ‘preferred partners’ by Tesco, according to Dail Mail in its report. The auto giant Mahindra & Mahindra, however, has subsequently officially denied any parleys with Tesco through a press statement.

“We would never comment on specifics but are pleased with the way discussions are going,” said Andrew Higginson, in context of the report.

Under the government policy regulations, foreign multi-brand retailers are not allowed to bring in any FDI for investments in retail. To circumvent this provision, foreign retailers appoint franchisees, who like Bharti, own and operate front-end operations, while they provide back-end sourcing, logistics, and technical services. Foreign, multi-brand retailers, however, are allowed to fully own and operate back-end ‘cash and carry’ wholesale retailing operations in India. While, Germany’s Metro AG has already set-up three ‘cash and carry’ stores in India, Wal-Mart and Carrefour are in the process of doing so this year. Wal-Mart’s cash and carry business, unlike others, though, will be in partnership with Bharti.