Britain’s Tesco said on Friday it had struck a joint venture deal with India’s Tata Group to become the first foreign supermarket to enter the country’s US$500-billion retail sector.
The world’s third-biggest retailer made the announcement after winning clearance from the Indian Foreign Investment Promotion Board for a US$140-million investment in the alliance with Tata Group unit Trent Ltd.
Tesco said in a statement it had “entered into an agreement with Trent Limited, part of the Tata Group, to form a 50:50 Joint Venture in Trent Hypermarket Limited (THL) which operates the Star Bazaar retail business in India”. It said final clearances were still necessary.
If approved, the deal will make Tesco the first retail giant to debut in the massive Indian retail market since New Delhi removed foreign investment barriers in 2012.
On completion of the deal, THL will operate 12 stores selling goods from food and groceries to home and kitchen products and fashion and accessories.
The Indian government moved two years ago to open up its potentially lucrative retail sector to foreign companies to try to boost a sharply slowing economy.
But until Tesco’s announcement, no companies had entered the market amid concern about tough conditions for entry.
Tesco already supplies goods to Tata’s Star Bazaar and Star Daily stores in southern and western India after signing a wholesale agreement in 2008.
Until the law was relaxed, foreign multi-brand retailers had been unable to sell directly to consumers in India.
Trent said it believes its “understanding of the Indian market coupled with Tesco’s unparalleled global retail expertise will allow us to leverage the tremendous potential of the market”.
Foreign supermarkets can now hold stakes of up to 51 percent in multi-brand retailers since the government opened up the sector.
US giant Walmart and France’s Carrefour were among the first retailers to voice interest in setting up shop in India, the world’s second-most populous country and home to a fast-growing middle class.
But the supermarkets have sought more clarity on the rules, which say foreign firms must earmark 50 percent of their investment to setting up back-end infrastructure such as warehouses.
They must also source at least 30 percent of the value of the goods they sell from small-scale local firms.
Walmart last October announced it was ending its retail partnership with Indian firm Bharti, with which it had operated as a wholesaler in the country since 2007.
Analysts say some foreign retailers are waiting until the results of the general election are known in May before deciding on investment, with the main opposition Bharatiya Janata Party expected to take power.
Source : Channel News Asia | March 22, 2014