For Carrefour to exit a market is nothing new. Even before Georges Plassat began his domestic refocus as chief executive, the firm was no stranger to dropping underperforming markets.

For Carrefour to exit a market is nothing new. Even before Georges Plassat began his domestic refocus as chief executive, the firm was no stranger to dropping underperforming markets — most famously entering, and leaving, Russia within a few months in 2009.

Under Plassat foreign divestments have accelerated. India joins a raft of countries that Carrefour has left since 2012 — including Greece, Singapore, Colombia, Indonesia, Malaysia, Turkey and the UAE. By this logic, India is a logical progression for a firm whose strategy has explicitly centred on France.

A trillion-dollar market

But India is different. As the world’s second most populous market, its retail potential is strong. Even with low income levels, aggregate retail sales are expected to pass the US$1trn (£585bn) mark next year. This figure will rise quickly as income levels take off and organised chains become more established.

Carrefour, along with Tesco and WalMart, has long coveted the potential India presents. Its entry into wholesale in 2010 was seen as a precursor to a retail presence, as foreign investment became deregulated.

With this in mind, the timing of the decision to leave — coinciding with the election of the BJP Government, who ran, and won, on an election ticket that pledged to put a stop to foreign majority investment in multibrand retail — has some significance.

UK retailer Tesco managed to establish a venture before the BJP closed the door. But Carrefour and WalMart have been left on the outside. WalMart has switched to Plan B: ramping up existing wholesale operations and focusing on ecommerce where the BJP may allow greater foreign involvement. Carrefour has cut its losses and left before the party starts.

A strategic or political decision?

But analysts are divided over whether the decision is strategic or a result of the BJP victory. Some have pointed out that rumours of a Carrefour sell-off have circulated for months, even years. Carrefour is thought to have been talking to buyers since March, which predates the BJP victory, although not the heightened uncertainty that election expectation brought.

However, Carrefour’s entry into India was motivated by retail, not wholesale. Only last year Carrefour was lobbying the government alongside Tesco and WalMart for clarification on multibrand retail investment.

Despite liberalisation under the Indian National Congress, many clauses remained difficult for retailers to navigate. If the decision to exit was not motivated by the election of the BJP, then it was certainly motivated by the fact that Carrefour no longer thought multibrand retail to be viable.

A modest exit but a missed opportunity

In the short term Carrefour will lose little by exiting India. The firm has given strategic priority to its core markets of France, Brazil and China, and remains present in over 30 countries. Its five Indian stores are a token investment compared with France, where it has almost 5,000 stores, or the rest of Europe where it has almost 4,000.

However, exiting one of the world’s most potentially exciting retail markets could prove to be costly in the long term. A refocus on French consumers has delivered a turnaround for Carrefour under Plassat, but in aggregate the French market is mature and future growth will be constrained. On the other hand, India may be a difficult low-income market offering low margins, but it is expected to grow quickly.

Despite its population, Indian aggregate private consumption is about one-third lower than that of France. But over the coming decades it will grow to be the world’s third-largest market after China and the US.

In 10 years Indian private consumption, in aggregate dollar terms, is forecast to be two or three times higher than that of France. It will also keep growing as per capita levels seek to bridge the significant gap between India and mature markets.

On the one hand, Carrefour should be hailed for acting decisively, but while Plassat can have no regrets, his future successors may rue the decisions of today.

  • Jon Copestake is chief retail analyst at the Economist Intelligence Unit