AHMEDABAD, India – British supermarket giant Tesco announced a joint venture in India on Friday with a company owned by Tata Group to invest in a chain of grocery and household goods stores.
It is the first multinational entry into India’s vast but underserved supermarket sector since the country allowed such investment in 2012.
Tesco said in a statement it would invest 85 million pounds ($140 million) to take a 50 per cent share of Tata-owned Trent Hypermarket Ltd., which operates the Star Bazaar chain. It said the chain would operate 12 stores in southern and western India selling food and groceries, home and personal products, plus fashion and accessories.
Other major international multi-brand retailers have stayed out of India’s $400 billion market in retailing — despite its huge potential for growth with a population of 1.2 billion people who now shop mostly at small family-owned stores. Most have cited strict local-sourcing rules they say make doing business in India too difficult.
In a politically sensitive move, India last year gave the green light for international companies to open multi-brand retail stores, but to allay concerns about the impact on small traders and family-run shops, those companies must obtain 30 per cent of their products from local small and medium-sized businesses.
The world’s largest retailer, Wal-Mart, prominently split from its Indian business partner last year and shelved plans to open its own stores, saying it could not meet the local sourcing rules and make a profit.
Tesco, Britain’s largest retailer by sales, focuses heavily on food and groceries that are easier to buy from small Indian suppliers. It has since 2008 been running a wholesale business to supply goods and technical knowledge to Trent Hypermarket.
The Tata Group, owner of Trent Hypermarket, is one of India’s largest and best-known conglomerates. Its more than 100 companies include Tata Motors, owner of the Jaguar-Land Rover brand; Tata Steel; Tata Consultancy Services; Tata Beverages, the maker of Tetley brand tea; and holdings in insurance, investment and telecommunications.
Proponents of opening up India’s retail market say easing foreign investment restrictions would give consumers more choice and spur spending in an economy which slowed last year to its weakest rate in 10 years after two decades of rapid growth. India first began opening up to foreign investment in the 1990s but advocates say those measures have gone as far as they can and more liberalization is needed to spark growth.
Single-brand retailers are now allowed full ownership of stores in India, and previously unavailable cosmetic brands as Body Shop and Clinique, food outlets like McDonald’s and Domino’s and fashion giants Mango and Zara have all opened stores.