By Frank Kane
India’s Bharti Enterprises and US retailer Wal-Mart Stores have agreed to a joint venture to enter India’s lucrative retail sector.
“The joint venture with equal stakes will operate in areas where the government allows foreign investment in retail like cash-and-carry and logistics," Bharti Enterprise chairman Sunil Mittal said.
The retail shops will be owned by Bharti Enterprises under the Wal-Mart franchise. The idea is to give Indians the lowest price everyday.
Foreign retailers are keen to enter India’s rapidly growing retail market, but multiple-brand retailers are only allowed to operate through franchises and licencees, or a cash-and-carry wholesale model, as Metro and Shoprite have chosen. Bharti gave no details on investment and roll out plans.
Single-brand retailers are allowed to own a majority stake in a joint venture with a local partner, but India is widely expected to further ease rules on foreign investment.
Bharti had been in talks with Tesco of Britain for some months, but these were terminated last week with both sides reporting failure to reach agreement on specific terms. The sudden move by Wal-Mart will be regarded as a blow to Tesco’s international expansion plans.
The Indian retail industry is estimated at about US$300bn, and is forecast to grow to US$427bn in 2010 and US$637bn in 2015, according to consultancy Technopak Advisors.
Organised, or branded, retail makes up only 3% of the market, compared to China’s 20% and Thailand’s 40%. But that share is set to rise to 15-18% by 2011/12, with the entry of large Indian firms including Bharti, Reliance Industries, the Tata Group and the Aditya Birla Group.
Reliance Industries, the top petrochemical company, recently opened its first grocery stores and is investing US$5.6bn in formats ranging from convenience stores to hypermarkets. It expects revenue of US$22bn from retail operations by 2010/11.
Cigarette maker ITC has also opened its first grocery stores and plans to add outlets quickly. Bharti has a joint venture with the El Rothschild group for FieldFresh, which supplies fresh produce to overseas retailers.
Wal-Mart has a liaison office in India and expects to step up its sourcing of items such as apparel, textiles and shoes from the country, which totalled more than US$1.6bn this year.
Tesco also sources food and non-food items from India.