The world's third-largest retail group, the UK-based Tesco PLC, today said that it would invest £60 million over the next two years to develop a wholesale cash-and-carry business in India, and also have an exclusive franchise agreement with Trent, the retail arm of the Tata Group.
Tesco had been in talks with the Sunil Mittal-led Bharti Group in 2006 for a possible tie-up but the negotiations ended without a deal (See: Talks snap on Bharti-Tesco retail partnership) with Bharti eventually tying up with Wal-Mart, the world's largest retail chain in March last year (See: Bharti, Wal-Mart in wholesale joint venture, says government).
Foreign direct investment by global multi-brand retailers is currently restricted to wholesale, franchise and back end supply chain management arrangements in India.
Under the terms of the agreement the UK retailer and the Tata Group, for which Tesco will receive a fee, Trent will be able to draw on Tesco's retail expertise and technical capability to expand its hypermarket business, Star Bazaar.
Trent plans to expand its four Star Bazaar hypermarkets to a chain of 50 stores over the next five years. The four star Bazars are currently located in Ahmedabad, Bangalore and two in Mumbai.
Trent will also source merchandise for Star Bazaar from Tesco's planned wholesale cash-and-carry business in India, benefiting from Tesco's sourcing capability and supply chain expertise.
''The franchise agreement will enable us to access Tesco's retail knowledge and expertise and will play an important role in our endeavour to offer a world class shopping experience to customers across the country," said Noel N. Tata, Managing Director, Trent Ltd. "Tesco's wholesale cash-and-carry business will provide us with the opportunity to tap into a highly efficient supply chain thereby delivering more choices at even better prices to our customers.''
The new wholesale outlets will be designed for the Indian market based on local research and offer a range of value fresh food, grocery and non-food products to small retailers, restaurants, kirana stores and other business owners.
Tesco says the business, to be based in Mumbai, will also provide farmers and other suppliers with a highly efficient route to market. Tesco's wholesale business will supply merchandise to Star Bazaar, enabling the two companies to benefit from the rapid development of a modern supply chain.
Tesco already sources over £170 million worth of Indian products each year, with sourcing offices in Delhi, Bangalore and Tirupur. It also employs nearly 3,000 Indian staff at its Hindustan Service centre in Bangalore, providing IT, financial and business services to the entire Tesco Group.
Sir Terry Leahy, CEO of Tesco PLC, said, ''This is another exciting development for Tesco. It complements our entries into China and the United States, giving us access to another of the most important economies in the world. Our wholesale cash-and-carry format will bring improved value, range and service to thousands of Indian businesses.
''Having Trent as a customer of our wholesale cash-and-carry business will enable us to rapidly develop supply chain infrastructure and processes which will also benefit farmers, small manufacturers and other suppliers. Our agreement will enable us to share our international retail expertise, supporting Trent in the development of their Star Bazaar hypermarket business and benefiting Indian consumers.''