Tata new Indian partner for Tesco?

Ever since Bharti group dumped it for Wal-Mart, European retail major Tesco has been on the look out for other prominent Indian corporate houses for entering Indian retailing. If market reports are to be believed Tesco has managed to attract one of the best partners it can hope for, the Tata Group. The two sides are said to be in advanced negotiations to finalise a detailed strategy and a formal announcement is expected shortly.

It is very likely that the agreement, if it comes, between Tesco and Tata Group would be similar to the arrangement being worked out between Bharti and Wal-Mart. While Tata Group would be majority owner and manage the front-end retail stores, Tesco would drive the back-end procurement and logistics and the wholesale business.

The Tata Group has partnered Australian retail giant Woolworths for its foray into consumer durable retailing under the Croma brand. Woolworths provides sourcing services and technology inputs to the Croma chain, which is controlled by Infiniti Retail – a fully owned subsidiary of Tata Sons. The Group is planning to expand the Croma chain with a target of 100 stores by 2010. Another Tata Group company, Trent Limited, operates the Westside chain of lifestyle products stores and the Landmark chain of bookstores.

R K Krishnakumar, director, Tata Sons, who is heading the group's retail initiatives, had stated recently that Woolworths would remain the Group's preferred partner for other forms of retail as well. It is not clear how the Tata Group would manage its relationship with Woolworths if it finally ties-up with Tesco.

The Indian retail market is attracting a large number of international players in anticipation of explosive growth. Currently estimated at around $300 billion per annum, the market is expected to grow to $500 billion in a decade. Organised retail currently accounts for less than 5 per cent of the total market but is expected to touch nearly 25 per cent by 2010. This would provide significant growth opportunities to major retail chains.

For the big global retailers, a strong domestic presence would also help them to expand their sourcing operations in India. The country is steadily emerging as a low cost source of many products, ranging from home furnishing to food products.

Even now, the vast potential of India as a major sourcing destination for consumer products remain untapped because of logistical and infrastructure constraints. Big global retailers can set up large sourcing networks and associated infrastructure, especially if they are also allowed to establish domestic operations.

However, current Indian policies do not allow international retailers to own multi-brand stores in the country. They can hold majority stakes in single-brand stores and own whole of wholesale cash and carry business. German retailer Metro was the first to set up a wholesale business under this policy.

But the restrictive guidelines are not dissuading the big retailers from entering the country as they expect the norms to be relaxed in future. Wal-Mart has already tied up with Bharti Group and the first store from the combine is expected to open early next year. While Tesco is negotiating with Tata Group, French retailer Carrefour is said be in talks with the Wadia Group for a possible entry.