Is India the gateway to global domination for Tesco?
Tesco’s march into the Indian market was an inevitable move for a retailer with ambitions for global domination. But it comes almost two years after rival Asda-parent group Wal-Mart announced a 50/50 joint venture with Indian telecoms partner Bharti. And with an initial investment of £60m over two years to open a wholesale cash-and-carry chain – a snip for a business with group sales of £51.8bn – some view Tesco’s attempt to take a slice of the £300bn Indian retail market as “somewhat cautious”.
Last week it announced plans to launch a wholesale cash and carry business to offer a range of fresh food, grocery and non-food products to small retailers and restaurants. It means that Tesco will have access to the market to supply products to India’s 12 million “kiranas” – the small, family-run shops that dominate the country’s grocery trade. Tesco is also entering into an exclusive agreement with the retail arm of the Tata Group to help grow its hypermarket business, Star Bazaar, from four stores to 50 over five years.
Proceeding with caution
One retail branding expert says/ “For a retailer that was pipped to the post by Wal-Mart, when Tesco’s initial talks with Bharti proved unsuccessful, it is now approaching the market with caution and little investment. And there is no talk of launching dual-branded hypermarkets with Tata either.”
A spokeswoman for Tesco admits that the retailer had been “looking at India for ten years.” But she adds: “India is a long-term plan for us, and we have been looking at various options. It was very important for us to get the right partner.” Tesco intends to roll out “some” own-branded products through Star Bazaar.
Restrictive Indian regulations currently prevent foreign investment in multi-brand retail businesses. Though there have been indications that this is set to change, the political climate can sometimes act as a major hurdle to foreign players. The key political allies of the Congress-led coalition Government continue to object to overseas brands entering India. Wal-Mart has already had its brush with such hostility, when last year it witnessed a protest march – India’s largest-ever demonstration against retail.
“Its first foray into India as a wholesaler is a way of getting a foothold into that market, but not surprising as it is entering a market with a new set of challenges,” says Verdict lead analyst Maureen Hinton.
She adds that Tesco is “very flexible” in its approach to different markets. Tesco has footprints in China, with just over 50 stores there, as well as South Korea, Thailand, Hungary, Poland and Turkey.
Last year, Tesco launched Fresh & Easy convenience stores in the US, but it has been plagued with problems since. Earlier this year, and amid reports of poor sales, it took a three-month “break” from opening new Fresh & Easy stores.
But Mintel analyst Richard Perks says: “India, with its growing population and burgeoning middle class, is a more important market than the US, and Tesco will make sure it succeeds.”
Race for the top
Tesco’s entry to India is seen as aprecursor to the race to be positioned as the global “big three”, with WalMart, Carrefour and Metro all jostling for the top slot. Observers say Tesco is well positioned for a global assault.
Planet retail research director Brian Roberts adds: “The move to India gives Tesco access to the most important economies of the world. And with its presence in countries like China and India, and I think Russia at some point, it will be in markets that will potentially dwarf the West. Once India fully opens its doors to foreign investment, Tesco will be right ahead in the race to be a world leader.”
Sonoo Singh
