You would have thought Tesco would be hurting. With its aspirations plainly aimed at foreign shores, the news that Wal-Mart has successfully wooed Bharti Enterprises, beating Tesco into India, should have come as a blow. IGD estimates the Indian grocery market will grow by almost 40% between now and 2010, from £114bn to £158bn, and the sooner you get in the sooner you can tap into that rich vein of revenue.
However, the reality is quite the reverse. Wal-Mart's coup is important only from a PR point of view, and far from hampering the entry of its rivals, analysts say this deal could make the way in for others easier and quicker.
"The big question the Wal-Mart deal raises is over government restrictions," says Ira Kalish, director of consumer business at Deloitte Research. "There's been a lot of talk about foreign businesses entering through the back door, and this is pretty much what has happened. I think deregulation is more likely now; certainly the government and the prime minister are keen."
Currently Indian law forbids foreign multiples to enter the front-end retail market unless under a licence or franchise agreement. They are permitted to set up wholesale operations, but these are not allowed to sell fresh produce. This is to protect the interests of the hundreds of millions of Indian farmers, corner shop operators and market stall owners. However, there are signs that restrictions are already easing.
"We've been told Metro, although previously banned from selling fruit and vegetables in its cash and carry stores, has recently been allowed to do so," says Fiona McTavish, senior business analyst at IGD.
McTavish also draws parallels with China, which once barred foreign investment. "China initially focused on two areas. International investors had to form a joint venture with local partners and they were also restricted to the large first and second-tier cities. There are signs the Indian market is opening up in a similar way."
Tesco says it is prepared to wait. While it is interested in India as a market, it was not prepared to meet Bharti's demands for an aggressive store roll-out programme.
Bharti's boss Sunil Mittal is conscious that Reliance Fresh, the retail arm of India's biggest company Reliance Industries and his main local supermarket competitor, has already begun its plan to build 6,000 stores across India. He envisaged a bigger and swifter roll out plan than Tesco. Talks between the two were ended last week.
"With joint venture partnerships you need to go at a sensible pace that is well informed and disciplined," Tesco's group communications and corporate affairs director Lucy Neville-Rolfe told The Grocer. "We mutually agreed we probably weren't right for each other. We like to take the time to do our research before moving into new markets."
Witness its work in Thailand, Korea and the US, where Tesco ground teams were researching the markets for years before any stores were opened.
Analysts agree, saying there is no need to rush into a store opening programme. "There's so little modern retailing in India it makes sense to take your time. But it would be good to have several major retailers present. That will establish a critical mass, and this allows the infrastructure, supply chain and sophistication of suppliers to develop, which is a win-win for all," says Kalish.
Details about how the Wal-Mart/Bharti venture will manifest are scant and speculation is rife. Kalish expects a multi-floor supermarket format to be the initial choice for stores. McTavish says they may simply be interested in starting with a cash and carry operation, using Bharti's local knowledge. The Indian press says agreements will be made in January, with execution taking place a year from then, using leased store sites.
They will need to get through the review process first. Already political parties have voiced opposition to the deal, saying it will displace local retailers and workers.
Whatever happens, Tesco will be watching closely. Its official line is it will continue to pursue both local partnerships and regulatory change. "Don't forget we still have a research team out there looking at the customers, the logistics and building the right networks.
"We are interested in deregulation but we are also looking to see if a local partner is a good opportunity," says Neville-Rolfe.
Tesco will announce an update on its plans for India at its annual results early next year.Indian statistics
India's food retail market is worth £114bn
Food and drink accounts for 62.6%
IGD forecasts the market will be worth £255bn by 2020
The only foreign retailers present in the market are Metro (using its C&C operation in the unrestricted wholesale sector), Spar International (through its franchise agreement), Dairy Farm (ex-joint-venture) and Shoprite (lone venture). M&S also operates six non-food stores under franchise and Waitrose supplies some HyperCity stores with its own label products
Organised retail is estimated to account for less than 4% of the retail market. Unorganised retail is dominated by traditional wet markets and neighbourhood stores ('kiranas'). It is estimated there are more than four million traditional outlets
Discount stores and supermarkets dominate modern grocery. Hypermarkets are not common as a result of the high cost of real estate, low car ownership, high traffic congestion and low consumer spend
Price is still very much the deciding factor in consumer purchasing habits. Retailers use promotional packs, undercutting the maximum retail price, and bogofs
However, the reality is quite the reverse. Wal-Mart's coup is important only from a PR point of view, and far from hampering the entry of its rivals, analysts say this deal could make the way in for others easier and quicker.
"The big question the Wal-Mart deal raises is over government restrictions," says Ira Kalish, director of consumer business at Deloitte Research. "There's been a lot of talk about foreign businesses entering through the back door, and this is pretty much what has happened. I think deregulation is more likely now; certainly the government and the prime minister are keen."
Currently Indian law forbids foreign multiples to enter the front-end retail market unless under a licence or franchise agreement. They are permitted to set up wholesale operations, but these are not allowed to sell fresh produce. This is to protect the interests of the hundreds of millions of Indian farmers, corner shop operators and market stall owners. However, there are signs that restrictions are already easing.
"We've been told Metro, although previously banned from selling fruit and vegetables in its cash and carry stores, has recently been allowed to do so," says Fiona McTavish, senior business analyst at IGD.
McTavish also draws parallels with China, which once barred foreign investment. "China initially focused on two areas. International investors had to form a joint venture with local partners and they were also restricted to the large first and second-tier cities. There are signs the Indian market is opening up in a similar way."
Tesco says it is prepared to wait. While it is interested in India as a market, it was not prepared to meet Bharti's demands for an aggressive store roll-out programme.
Bharti's boss Sunil Mittal is conscious that Reliance Fresh, the retail arm of India's biggest company Reliance Industries and his main local supermarket competitor, has already begun its plan to build 6,000 stores across India. He envisaged a bigger and swifter roll out plan than Tesco. Talks between the two were ended last week.
"With joint venture partnerships you need to go at a sensible pace that is well informed and disciplined," Tesco's group communications and corporate affairs director Lucy Neville-Rolfe told The Grocer. "We mutually agreed we probably weren't right for each other. We like to take the time to do our research before moving into new markets."
Witness its work in Thailand, Korea and the US, where Tesco ground teams were researching the markets for years before any stores were opened.
Analysts agree, saying there is no need to rush into a store opening programme. "There's so little modern retailing in India it makes sense to take your time. But it would be good to have several major retailers present. That will establish a critical mass, and this allows the infrastructure, supply chain and sophistication of suppliers to develop, which is a win-win for all," says Kalish.
Details about how the Wal-Mart/Bharti venture will manifest are scant and speculation is rife. Kalish expects a multi-floor supermarket format to be the initial choice for stores. McTavish says they may simply be interested in starting with a cash and carry operation, using Bharti's local knowledge. The Indian press says agreements will be made in January, with execution taking place a year from then, using leased store sites.
They will need to get through the review process first. Already political parties have voiced opposition to the deal, saying it will displace local retailers and workers.
Whatever happens, Tesco will be watching closely. Its official line is it will continue to pursue both local partnerships and regulatory change. "Don't forget we still have a research team out there looking at the customers, the logistics and building the right networks.
"We are interested in deregulation but we are also looking to see if a local partner is a good opportunity," says Neville-Rolfe.
Tesco will announce an update on its plans for India at its annual results early next year.Indian statistics
India's food retail market is worth £114bn
Food and drink accounts for 62.6%
IGD forecasts the market will be worth £255bn by 2020
The only foreign retailers present in the market are Metro (using its C&C operation in the unrestricted wholesale sector), Spar International (through its franchise agreement), Dairy Farm (ex-joint-venture) and Shoprite (lone venture). M&S also operates six non-food stores under franchise and Waitrose supplies some HyperCity stores with its own label products
Organised retail is estimated to account for less than 4% of the retail market. Unorganised retail is dominated by traditional wet markets and neighbourhood stores ('kiranas'). It is estimated there are more than four million traditional outlets
Discount stores and supermarkets dominate modern grocery. Hypermarkets are not common as a result of the high cost of real estate, low car ownership, high traffic congestion and low consumer spend
Price is still very much the deciding factor in consumer purchasing habits. Retailers use promotional packs, undercutting the maximum retail price, and bogofs
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