Tesco Follows Walmart into India

Discussion
Aug 19, 2008

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?

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8 Comments on "Tesco Follows Walmart into India"


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Steve Bramhall
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Steve Bramhall
13 years 9 months ago

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.

Charles P. Walsh
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Charles P. Walsh
13 years 9 months ago
I don’t believe that there is a permanent advantage that Walmart will enjoy as number one entrant. India is a huge market and untapped relative to a “modern retail” entry. Russia’s market was/is made up of unorganized and localized vendors and decentralized distribution. There was a question of whether the country and its populace would embrace modern retail. The reality is that Russia has absorbed a number of western retailers including IKEA, Carrefour, Auchan, B&Q, Macro and many other western retailers, not to mention their own home grown developments such as Lenta, and Seven Continents. Walmart is considering an entry into this market and considering the countries growing wealth there is still potential there. India, with a “middle class” approaching 300 million is developing a demand that will support modern retail at a scale that will dwarf the Russian market place. There will be ample room for Tesco and many other global retailers to open shop there. The advent of modern retailing will in turn spur the infrastructure development needed to support it which will… Read more »
Gene Detroyer
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13 years 9 months ago
We are going to see the development of retail in the BRIC countries parallel the retail development of the U.S. in the last 100-years. The difference is that that development will be condensed into a 15 to 20 year span. There is no doubt on where the growth is. In India or China the “middle class” already has more people in it than in the U.S. That is why I am raising a SPAC for development of retail in those countries. There are differences for each country, in particular, the extent of the property rights. And, there is a certain amount of protectionism. That will be worked through because the pay-off is so great. Specifically, in India, the greatest challenge is their infrastructure, which is notoriously poor and not expanding with any integrated focus. Infrastructure in roadways and electricity are particularly weak. As far as Walmart goes, they certainly have a leg up. But as I noted in the paragraph above, the time-frame of development will be so compressed and the evolving targets are so… Read more »
Anne Bieler
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Anne Bieler
13 years 9 months ago

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.

Pradip V. Mehta, P.E.
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Pradip V. Mehta, P.E.
13 years 9 months ago

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.

Gene Hoffman
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Gene Hoffman
13 years 9 months ago

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.

Nikki Baird
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Nikki Baird
13 years 9 months ago
My impression of the Indian retail market (especially vs. Russia) is that the level of entrepreneurship is much higher, and there is a much greater interest in investing in technology to support retail operations. Don’t get me wrong–this is not about self-service for customers–but about leapfrogging mature retail markets in terms of sophistication. There also seems to be great interest in using technology AS infrastructure, rather than relying on the long slow process of building physical infrastructure like roads. Shopping (and supply chain) processes that leverage mobile phones and wireless technologies of any kind over traditional ERP investments. Again, I’ll qualify–that has been my impression, limited by distance. But it’s changed my own perception. I used to look at BRIC retailing as something that was just behind US & Europe retail markets on the evolutionary scale–behind, but catching up fast. But there are so many things that are different, that this kind of view simply doesn’t work. While Walmart may have 2 years on Tesco, Tesco has had far more experience in foreign markets and… Read more »
Bernice Hurst
Guest
13 years 9 months ago

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.

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