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?
- Tesco plans cash-and-carry in India, will support Trent – Indiaretailing.com
- Tesco Picks Tata’s Trent for India Wholesale Venture – Bloomberg News
- Tesco hots up drive into India – Times
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8 Comments on "Tesco Follows Walmart into India"
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India is massive and there is room for everyone. Organised retail is making progress but is still slow so this will boost it along which is great. Progress needs to happen and the people will adapt. They have been phenomenally adaptable so far. The economy is hampered by high inflation, generally poor infrastructure and a very poor, poor class; not so different from China. Trade and investment will continue to help change this.
The retail opportunity is very attractive as the younger, educated middle class increases to the 300 million mark. While still early days, Brazil, Russia and China have successful examples of modern retail, and are on a track for future expansion. The challenge in India differs in that a new retail format model has to be developed to position against the family owned businesses, that overcomes lack of infrastructure and poor supply chain management.
Many of the economic analyzes highlight the number of touchpoints within Indian supply chains–15 or more in many cases. It is more expensive and it takes much longer to get products in front of the shopper. As local regulations restrict store ownership to larger format Cash and Carry venues, Tesco has been developing supply chain efficiencies for these stores. Tesco has done well globally to create formats suited for local shopper demographics, and could do well in the long run with partner Tata.
Tesco has not lost the first mover advantage. As a matter of fact, Tesco is better positioned than Walmart by virtue of association with Tatas. Tatas has much better retail experience based on their stores such as Westside (a chain of department stores), Star Bazar (a chain of grocery as well as discount stores), and Titan (a chain of jewelry and watch stores). Bharti Telecom has experience only in mobile/cell phone retail services. They have no retail store such as Tatas have. I consider Tesco’s move much smarter than Walmart’s.
In regard the third question about Walmart being first in India: Being first is a big advantage for Walmart providing they continually serve their new customers better than anyone else could serve them. Otherwise Walmart is just laying ground work for a better-prepared second entry such as Tesco.
Small shopkeepers, traders and farmers protested so strenuously last year that Reliance Fresh stores in several states were forced to shut down. The chain is now banned in India’s most populous state, Uttar Pradesh. But maybe creating a string of cash and carries by Tesco will provide a back door through which products can flow, forcing some of those same small shopkeepers and traders to fall into line or cease trading. Kinda like what Tesco has done to small shopkeepers and traders in the UK. But, hey, they’re entrepreneurs and “They will get to respect and understand our brand,” as Mr Clarke said. That’s what democracy (capitalism???!!!) is all about, after all.