More than a year after the government allowed 51% foreign direct investment (FDI) in multi-brand retail, Britain’s Tesco, the world’s third largest retailer, is set to become the first foreign supermarket to foray into India’s Rs 31 lakh crore ($500 billion) retail sector.
On Tuesday, Tesco announced it had applied to the Foreign Investment Promotion Board (FIPB) to buy a 50% stake in Tata group’s Trent Hypermarket, thus confirming months-long speculation about a possible multi-brand joint venture (JV) between the two.
Trent operates the supermarket chain Star Bazaar. Subject to mandatory approvals, the Tata-Tesco joint venture would focus on Karnataka and Maharashtra.
Tesco, reports said, wants to invest $110 million (around Rs 682 crore) on its India foray, well above the stipulated minimum multi-brand retail FDI of $100 million.
In a blog on Tesco’s website, Trevor Masters, CEO of the company’s Asia operations, said “We have been working with the Tata group in India for over five years, supporting the development of their Star Bazaar and Star Daily multi-brand retail stores via the provision of wholesale and franchise agreements. We have always said we’d like to get more involved in this exciting market and we are submitting an application to the government which, if successful, would allow us to enter into a joint venture with Trent Hypermarket.”
Tesco had formed an alliance with the Tata group in 2008 for providing back-end support and for wholesale and franchise agreements.
The British retailer now supplies around 80% of the goods to Tata’s 16 Star Bazaar and Star Daily stores.
Sources said Noel Tata, vice-chairman of Trent, was instrumental in bringing about the deal. Tata said, “The (Tesco) application (to the FIPB) is a positive step forward... We believe that our understanding of the Indian market coupled with Tesco’s unparalleled global retail expertise will allow us to leverage the tremendous potential of the market to the benefit of all stakeholders.”
A Trent Spokesperson told dna, “It is too early to speculate on other plans relating to the venture.”
Tesco’s application is expected to offer succour to the government after the snub it received recently in the form of Wal-Mart’s decision to call off its deal with Bharti and put its multi-brand retail plans on hold.
Tesco CEO Philip Clarke and Noel Tata had met commerce minister Anand Sharma in May. The government had clarified that the 30% sourcing from medium- and small-scale enterprises would not cover fruits and vegetables (which account for 85% of Tesco’s offerings). This may well have expedited the deal, experts said.
Devangshu Dutta of Third Eyesight, a retail consultancy, said that even though Tesco’s entry is a positive development, several other brands will likely remain in the wait-and-watch mode before investing.
2013 – when Tatas wooed global majors
The year has been a busy one for the Tata group led by Cyrus Mistry (pictured) what with partnerships with three global players. Apart from the latest one with Tesco, Tata had inked a deal with Malaysia’s low-cost carrier AirAsia in February and the two are all set to launch a budget airline come 2014. In September, Tata tied up with Singapore Airlines for a 51:49 $49 million (to be scaled up to $100 million) JV to launch a full-service airline in India.