The British behemoth delivered a double-whammy – it will develop a wholesale cash and carry business in the country and has formed a franchise agreement with the retail arm of Tata to grow the latter’s hypermarket business, Star Bazaar.
The deal must come as welcome relief to Tesco, as it missed out on a partnership with India’s Bharti Enterprises last year after Wal-Mart pipped it to the post. The prospect of a tie-up with Bharti is thought to have broken down because the two couldn’t agree on strategy. Bharti wanted to go hell for leather on expansion and Tesco favoured more conservative development.
But, like Wal-Mart, Tesco opted for a wholesale approach with Tata. Wal-Mart is slated to open its first cash and carry store early next year and Tesco will not be far behind – its first is poised to open by the end of next year. Although it has only just signed a deal, Tesco representatives have visited India over a long period, learning much about its quirks.
Tesco also has experience of wholesale cash and carry from its acquisition of Makro in Malaysia. Tesco international chief Philip Clarke said Malaysia had taught the grocer enough to be confident about India.
Partnering with Tata is a good deal for both parties. Tesco is keen to run its own chain of retail stores in India but, at the moment, the Indian government does not allow foreign direct investment for multi-brand retailers in direct-to-consumer retail. However, with Tata, Tesco can show the country its expertise and be ready, if and when the Indian government changes the law.
Tata’s retail operation, Trent, has four hypermarkets at present and Tesco can help the Indian group reach its target of 50 in the next five years. What Tata does excel at is being a good employer, being customer focused and being professional. It also has low staff turnover, despite not paying top-end of sector rates. It must be doing something right.
The meeting of minds between Tesco and Tata means they are likely to agree on more issues than not and make things happen. The same may not be true of Wal-Mart and Bharti, which are understood to be struggling to forge an effective partnership and have yet to open their first operation.
Tesco has its fingers in a lot of international pies and some, such as the fledgling US business, are potentially massive. But India will definitely be one to watch.
Jennifer Creevy is news editor of Retail Week