Tesco Follows Walmart into India
By Tom Ryan
Two years after Walmart, Tesco Plc announced plans to enter India. Partnering with Trent Ltd., the U.K.’s largest grocer plans to invest £60 million ($114 million) in opening a chain of wholesale stores in the country over the next two years.
Because of government restrictions on foreign ownership, Tesco is not yet allowed to open supermarkets under its own brand. Instead, it will develop a chain of cash-and-carry stores supplying Trent’s Star Bazaar hypermarkets, as well as many other independents. Star Bazaar is expected to expand to 50 stores across India in five years from four currently. The first store in Mumbai will open by the end of 2009.
Separately, the two companies agreed to share information. Tesco will provide retail know-how while Trent brings insights into the $150 billion Indian retail market. Trent’s parent, Tata Group, is one of the country’s biggest conglomerates and owner of businesses that include Jaguar cars.
“This is another exciting development for Tesco,” said Terry Leahy, chief executive, Tesco, according to Indiaretailing.com. “It complements our entries into China and the United States, giving us access to another of the most important economies in the world.”
According to consultant Technopak Advisors Pvt., chain-store sales in India are expected to surge more than eight-fold to $97 billion by 2012 as organized retail expands and attracts other western retailers. As usual, the most watched chain is Walmart, which two years ago forged a partnership with Bharti. Walmart has a fairly modest plan to open 10 to 15 cash-and-carry stores in India within seven years. Germany’s Metro also has stores in the region, and Carrefour is currently looking for a partner.
One concern regarding Tesco’s entry is that it has already lost first-mover advantage, especially against Walmart. But Phil Clarke, Tesco’s international and IT director, said on a conference call, “India, China and America are three countries with plenty of scope for growth, which is what shareholders want. Judge us in three years’ time whether or not we’re too late.”
The other concern is whether western retailers of all stripes will be accepted in a society dominated by kiranas, or small, largely family-run convenience stores. After Tesco’s announcement, protests again erupted over concerns that an avalanche of mom & pops would soon be going out of business. Mr. Clarke appeared to suggest that as in other markets, many of these smaller stores will find their own niches.
“These kiranas, they might be shopkeepers but they are really entrepreneurs,” said Mr. Clarke. “If it’s not food, they will sell something else. It’s a very entrepreneurial society.
“What we have to do is open cash-and-carries that bring quality and value to our business customers. They will get to respect and understand our brand. We can happily coexist.”
Discussion question: How does India’s opportunity for western retailers differ from other BRIC regions (China, Brazil and Russia)? How are the challenges different? Secondly, how big an advantage did Walmart gain as a first mover into the market?