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December 19, 2013
Nandita
Bose, Reuters
Mumbai,
December 19, 2013
It
took months of arm-twisting and assurances from New Delhi to persuade
British retailer Tesco Plc to take the plunge and become the first
foreign player to set up a chain of supermarkets in India.
Earlier this year, world No.1, Wal-Mart Stores Inc, walked away from India and few expected any of its rivals to step in before elections due by next May, which could bring to power a government that reverses the opening up of a $500 billion market long dominated by millions of mom-and-pop shops.
But on Tuesday, Tesco announced that it had applied to buy a 50 percent stake in Tata Group’s Trent Hypermarket Ltd to open stores in the western state of Maharashtra and neighbouring Karnataka,
The decision marked a victory for the ruling Congress party in securing its first foreign investment victory after staking its political survival on reforming the supermarket sector.
"We were under phenomenal pressure from the Indian government to apply and frankly phenomenal pressure is an understatement," said a senior Tesco official, who spoke on condition of anonymity. "The pressure was intense on a government-to-government level."
A Tesco spokesperson did not comment on the reasons behind the company’s decision to enter India now.
"We’ve always said we’d like to get more involved in this exciting market and having learnt a great deal through our agreement with Tata, we have taken the decision to make an application to develop a multi-brand retail business in India."
Tesco is in the middle of a big investment drive to reinvigorate its sales in the UK and despite closing loss-making businesses in Japan and the United States, its move to enter India shows the retailer’s continued ambitions to expand abroad.
Tesco, the world’s third-largest retailer, and Wal-Mart lobbied the Indian government for years to allow global brands into the country.
The door finally opened at the end of 2012 when the government, desperate to attract foreign investment as economic growth fell to its slowest pace in a decade, overrode stiff opposition from coalition allies and opposition parties.
But the government’s plans were dealt a heavy blow in October when Wal-Mart called off its Indian wholesale joint venture and postponed its entry plans, blaming unfriendly regulations and political uncertainty.
Sources at Tesco and Trent said they took a calculated risk by making their application before the elections, but it was a cautious one, deciding to invest only $100 million for now.
"Instead of waiting for another year we said ‘let’s go for it now’," said an official at Trent, who cannot be named as he is not authorised to speak to the media.
"We have been made to understand…that an approved investment plan will not be reversed as it will send a very wrong message to the international investor community."
Company sources said there had been numerous meetings with the government throughout the year, and talks intensified in recent weeks.
Two government sources said trade minister Anand Sharma met Tesco chairman Richard Broadbent at the Davos World Economic Forum in January and assured him there of "hand-holding" by the government if the company invested in India.
Sharma also had several meetings with Tesco chief executive Philip Clarke, who sought dilutions to the entry requirements.
WAY AROUND REGULATIONS
Along with Wal-Mart and Carrefour, Tesco until recently maintained that India’s retail regulations, especially one that mandates 30 percent local sourcing from small and medium-sized enterprises, will be difficult to comply with.
But the small scale of Trent’s hypermarket business will help Tesco adhere to the regulations for now, sources said.
"We have decided to tweak our current business model to comply with this," said the Tesco official. "Make no mistake, it’s going to be tough and the challenge will keep increasing as we grow, and so, as you see, our immediate growth plans for India are not very aggressive."
Since 2008, Tesco has had a franchise agreement with Trent Hypermarkets, which runs the Star Bazaar chain of stores and provides sourcing and technical help to its partner.
Star Bazaar runs 16 stores in the country and if Tesco’s investment is approved, they will open only 3-4 stores a year under the partnership, a very slow expansion plan designed to meet the sourcing regulations, find a model that works and fix the loss-making hypermarket chain, retail consultants said.
Tesco’s investment in India is widely expected to be cleared without much political opposition, thanks to its decision to keep a low profile before, consultants said. Wal-Mart, by contrast, had blazed the Indian retail trail, earning the ire of political parties and trade unions. An investigation into whether it broke India’s foreign investment rules and an internal bribery probe also delayed its plans.
"Wal-Mart decided to be aggressive, but Tesco decided to be discreet and its worked well for them," said Devangshu Dutta who heads retail consultancy Third Eyesight. "But whether they will be able to make use of the first-mover advantage and eventually lead the race remains to be seen."
(Additional reporting by Manoj Kumar in NEW DELHI and James Davey in LONDON; Editing by John Chalmers, Matt Driskill and Mark Potter)
(Sourced from Reuters.)
admin
December 18, 2013
Nupur
Anand, DNA (Daily News & Analysis)
Mumbai,
December 18, 2013
More than a year after the government allowed 51% foreign direct investment (FDI) in multi-brand retail, Britain’s Tesco, the world’s third largest retailer, is set to become the first foreign supermarket to foray into India’s Rs 31 lakh crore ($500 billion) retail sector.
On Tuesday, Tesco announced it had applied to the Foreign Investment Promotion Board (FIPB) to buy a 50% stake in Tata group’s Trent Hypermarket, thus confirming months-long speculation about a possible multi-brand joint venture (JV) between the two.
Trent operates the supermarket chain Star Bazaar. Subject to mandatory approvals, the Tata-Tesco joint venture would focus on Karnataka and Maharashtra.
Tesco, reports said, wants to invest $110 million (around Rs 682 crore) on its India foray, well above the stipulated minimum multi-brand retail FDI of $100 million.
In a blog on Tesco’s website, Trevor Masters, CEO of the company’s Asia operations, said “We have been working with the Tata group in India for over five years, supporting the development of their Star Bazaar and Star Daily multi-brand retail stores via the provision of wholesale and franchise agreements. We have always said we’d like to get more involved in this exciting market and we are submitting an application to the government which, if successful, would allow us to enter into a joint venture with Trent Hypermarket.”
Tesco had formed an alliance with the Tata group in 2008 for providing back-end support and for wholesale and franchise agreements.
The British retailer now supplies around 80% of the goods to Tata’s 16 Star Bazaar and Star Daily stores.
Sources said Noel Tata, vice-chairman of Trent, was instrumental in bringing about the deal. Tata said, “The (Tesco) application (to the FIPB) is a positive step forward… We believe that our understanding of the Indian market coupled with Tesco’s unparalleled global retail expertise will allow us to leverage the tremendous potential of the market to the benefit of all stakeholders.”
A Trent Spokesperson told DNA, “It is too early to speculate on other plans relating to the venture.”
Tesco’s application is expected to offer succour to the government after the snub it received recently in the form of Wal-Mart’s decision to call off its deal with Bharti and put its multi-brand retail plans on hold.
Tesco CEO Philip Clarke and Noel Tata had met commerce minister Anand Sharma in May. The government had clarified that the 30% sourcing from medium- and small-scale enterprises would not cover fruits and vegetables (which account for 85% of Tesco’s offerings). This may well have expedited the deal, experts said.
Devangshu Dutta of Third Eyesight, a retail consultancy, said that even though Tesco’s entry is a positive development, several other brands will likely remain in the wait-and-watch mode before investing.
2013 – when Tatas wooed global majors
The year has been a busy one for the Tata group led by Cyrus Mistry
(pictured) what with partnerships with three global players. Apart
from the latest one with Tesco, Tata had inked a deal with Malaysia’s
low-cost carrier AirAsia in February and the two are all set to
launch a budget airline come 2014. In September, Tata tied up
with Singapore Airlines for a 51:49 $49 million (to be scaled
up to $100 million) JV to launch a full-service airline in India.
(This article appeared in DNA.)
admin
December 17, 2013
Raghavendra
Kamath, Business Standard
Mumbai,
December 17, 2013
In
a move that will pave its way to enter Indian retailing segment,
UK-based retailer Tesco is picking up 50% stake in Trent Hypermarkets
run by Tata-owned Trent.
Tesco will make an application to Foreign Investment Promotion Board, Trent said in a statement today. Tesco already has a franchise agreement with Trent to provide background support to Trent in terms of technical know-how, sourcing and so on. Trent Hypermarkets runs 16 Star Bazaar branded hypermarkets in the country.
Trent said the proposed venture will build on existing portfolio of Star Bazaar stores in Maharashtra and Karnataka.
"The application envisages a minimum foreign direct investment in line with the applicable multi brand retail trading policy," the statement said. According to reports, Tesco is expected to make an investment of $110 million in India.
Noel Tata, Vice Chairman of Trent, said: “The application is a positive step forward in the relationship between the Tata Group and Tesco. We believe that our understanding of the Indian market coupled with Tesco’s unparalleled global retail expertise will allow us to leverage the tremendous potential of the market to the benefit of all stakeholders.”
Devangshu Dutta, chief executive, Third Eyesight, a retail consultant said: "When Tesco got into partnership with Tatas, the intent was to look at retail and not the back-end. Whenever Tesco expanded into new markets, they have done high level of localisation. In partnership with Tatas, they worked in the back-end, so its logical thing to take this partnership to a joint venture in retailing."
Dutta says many South Korean and japanese retailers are looking at Indian market seriously.
"Given the size and growth rate of India, any retailer who is looking to build a significant business in overseas markets, will look at India. Timing may not be appropriate for some of them, but they will definitely pursue their India plans", he said.
Tesco has a wholesaling business in the country and a global support centre based out of Bangalore.
admin
December 17, 2013
Palash
Ghosh, International Business Times
December
17, 2013
British
supermarket and retailing giant Tesco PLC said it wants to open
multibrand stores in India, making it the first international
retailer to enter the huge Indian market after New Delhi lifted
restrictions on foreign investments into the retail space in September
2012. Tesco, the third-biggest retailer in the world, has applied
to India’s Foreign Investment Promotion Board and initially plans
to invest $110 million in the country. On acceptance of the bid,
Tesco will operate in India through a 50-50 partnership with the
Mumbai-based conglomerate, Tata group.
According to its application, Tesco proposes to open three to five stores every financial year and plans to sell 14 categories of products, including tea, coffee, vegetables, fruits, meat, fish, dairy products, wine, liquor, textiles, footwear, furniture, electronics, jewelry and books. Under new rules approved by India’s trade ministry last year, foreign investors can now own up to 51 percent of their operations in the country, which is perhaps one of the largest untapped retail markets left in the world, not only due to its sheer size, but its rising middle class.
Specifically, Tesco said it will enter India by investing in the Tata-controlled Trent Hypermarket Ltd., which operates the Star Bazaar and Star Daily franchises in the western India province of Maharashtra and in the southern state of Karnataka.
India had not received any such application by a foreign retailer
until now (15 months after the government removed investment barriers),
partly due to heavy government regulations and serious political
opposition. Indeed, recently Wal-Mart, the largest retailer on
the planet, canceled a joint venture with India’s Bharti
Enterprises, due to draconian regulations. "We welcome the
decision of Tesco to invest in India," India’s Commerce
and Industry Minister Anand Sharma told reporters. "And on
our part, we assure them all support for expedited clearances.
… We hope that this will mark a new beginning in transforming
India’s retail industry. I am sure that the other global [retail]
leaders will also look at investing in India.”
In August of this year, the Indian government further relaxed foreign investment rules by permitting global multibrand retailers to obtain 30 percent of their products – i.e., sourcing — from local small and medium enterprises only at the beginning of their business operations, Business World reported. They will also be permitted to open shop in cities with populations below 1 million (which they had been banned from doing previously).
Interestingly, Tesco has decided to close its unprofitable stores in Japan and the United States (while restructuring its underperforming locations in its British base), but seems to think India offers huge potential. "We believe that our understanding of the Indian market, coupled with Tesco’s unparalleled global retail expertise, will allow us to leverage the tremendous potential of the market to the benefit of all stakeholders,” said Noel Tata, the vice chairman of Trent Limited, according to Press Trust of India. Tesco also operates stores in China, South Korea, Thailand, Malaysia, Poland, Hungary, Ireland, Slovakia, Czech Republic and Turkey.
However, given India’s slowing economy and lack of corporate investment, Tesco may be entering into some risky waters. In India, the opening of the country to foreign retailers remains controversial – opponents of the ruling Congress Party fear this will eliminate millions of the country’s small grocery stores. In response, Reuters noted, the government insists such investment will create millions of jobs and improve efficiencies in moving the food supply from farms to store shelves (thereby reducing the amount of food that has rotted and contributing to food price inflation).
However, another factor at play is next year’s general elections,
which could remove the Congress Party from power and put in place
the opposition Bharatiya Janata Party (BJP) party, which generally
opposes retail ventures from foreign entities. "The new
[investment] rules have removed some major stumbling blocks and
should encourage foreign retailers to enter India," said
Devangshu Dutta, head of retail consultancy Third Eyesight. "[But]
most [foreign] retailers are still likely to wait for the outcome
of the elections next year before they make a decision.”
(This article appeared in the International Business Times.)
admin
December 14, 2013
Vishnu Rageev R, Money Indices
New Delhi, December 14, 2013
An
empowered middle-class has been fuelling the growth of India all
these years, prompting multinational companies like Coca-Cola
India, fondly called Coke, to (re)strategise and relook at its
markets for a better share from the country’s continually
widening multi-billion dollar retail basket.
The company, which has seen six consecutive years of double-digit
growth, will settle with an additional investment of $5 billion
to deliver innovation, develop business relations and strategic
partnerships, uplift consumer experience, ensure product affordability,
and build countrywide brand loyalty in the coming years.
Some interesting times are in store for Coca-Cola India, as the CEO of its historic rival PepsiCo, Indra Nooyi, recently announced an investment of $5.5 billion in the country by 2020. The proposed investments by these two cola giants, estimated at $10.5 billion, will restore foreign investor confidence at a time when India’s growth story has been hit by economic turbulences, pushing it to a decade low.
“We are here to be successful,” said Ahmet C Bozer, Executive Vice-President, The Coca-Cola Company (TCCC), at an interactive session in Greater Noida, after the opening of Coca-Cola’s 57th bottling plant in India. “India would continue to flourish and our $5 billion investment plan is very well on track. We do not anticipate it to come down. Rather, it can be more. I see India emerging as one of the top five markets for TCCC by 2020.”
The non-alcoholic ready-to-drink beverage industry, which witnesses one of the largest investments in the country, has contributed significantly to the growth of allied industries. This industry is witnessing robust growth, driven by a combination of factors such as increased investments and innovations. Macro-indicators and the demographic dividends too favour robust growth for the beverage industry in India.
20 years of happiness
In 1977, George Fernandes, the Industry Minister in the then Janata Party government of Prime Minister Morarji Desai, issued an exit order to Coca-Cola. Although reasons for the exit order are still unknown, it was widely rumoured that the exit was ordered because the company was reluctant to share its secret formula with the government. However, India was too big a market to be kept off its radar forever.
“Our last two decades have been a journey of innovations, offering portfolio choices to consumers, contributing to the growth and development of the community and society in our own small way and playing a key role in bringing overall economic growth and development to India,” says Deepak Jolly, Vice-President, Public Affairs & Communications, Coca-Cola India & South West Asia. “Along the way, we have seen the acceptability of packaged beverages growing. Today, packaged beverages are a convenient and safe source of hydration, refreshment, and nutrition. Our lives are much easier with the pick and go options of packaged beverages, which have become a part and parcel of our everyday lives and count as good value-for-money options.”
Coca-Cola India has specifically been adaptive to the Indian environment. The company learnt quickly from their initial mistakes and tweaked its business model. Instead of worrying about competition, the company focussed on the consumer, which was an apt strategy.
“Over the last 20 years, Coca-Cola has made a genuine attempt to touch the lives of Indian consumers and be a part of their lives,” feels Jagdeep Kapoor, Chairman and Managing Director of Samsika Marketing Consultants Pvt Ltd. “Whether it is in terms of distribution spread or in terms of adapting to the Indian language in their advertising campaign, they have tried to be relevant to the Indian consumer through ‘Thanda Matlab Coca-Cola’ and the message of ‘Opening up Happiness’ and spreading indulgence through ‘Haan Mein Crazy Hoon’. Their focus on distribution, penetration and their aggressive ‘Prizing Sizing’ strategy has helped grow volumes and gain consumer acceptance.”
Coca-Cola India currently provides direct and indirect employment to over 1,50,000 people. The company provides extensive support to community programmes across the country through a series of Corporate Social Responsibility (CSR) initiatives focussing on education, health, and water conservation. ‘Support My School’ campaign is the company’s flagship CSR programme which has revitalised close to 200 model schools in India.
Quenching India’s thirst
For the Atlanta-based TCCC, a country of 1.2 billion people remains one of the last big frontiers as Indians on average consume only 12 eight-ounce bottles of Coke a year when compared with 230 bottles in Brazil and 92 bottles globally. Through horizontal expansion, the company is looking to increase per-capita consumption in India.
“The non-alcoholic ready-to-drink beverage segment has been growing at a compound annual growth rate (CAGR) of 13 per cent since 2009, and is one of the segments that have defied the economic slowdown,” adds Arvind Varma, Secretary General, The Indian Beverage Association (IBA). “We expect the country’s beverage industry to continue to grow in double digits in 2013, despite the recessionary trends being shown by most economies the world over, including the Indian economy.”
“We are working on a strategy to generate sales of our soft drinks across all seasons rather than just the summer,” adds Deepak Jolly. “We are working to de-seasonalise the business and want to make it a 12-month business. That means not just year-round marketing, but efficient distribution systems, reaching remote untapped markets, affordable pricing, innovative cooling solutions, and trade activation. Our spending will be in keeping with our brand plans, and our communication strategy will also be aligned to this business reality.”
“Yes, it is critical for Coca-Cola to tweak their existing business circus in India,” says Ramanujam Sridhar, Founder and CEO, Brand Comm. “India’s beverage market has evolved and is as promising as any foreign market. You might remember that earlier, beer was a beverage which was consumed only during summer. Today, there are customers for beer round the year. Coca-Cola also has to apply a similar strategy by creating occasions and moments in its customers’ mind so that they would come for it on a daily basis. Of course, it is a great brand.”
The company has introduced many revolutionary strategies over the last 20 years. It even introduced a few innovations like solar cooler, Vitingo, Minute Maid Nimbu Fresh, PET bottles, fountains, dispensers, etc.
Growing portfolio and volume
On October 24, 1993, Coca-Cola was launched in Agra. Since then, Coca-Cola India has taken rapid strides in the packaged beverage market, bringing two of the country’s largest soft drinks brands – Thums Up and Sprite – into its portfolio. Coca-Cola India is now one of the fastest growing brands, registering an 18 per cent volume growth during Q3, 2013.
“We have registered volume growth in India for the past 29 consecutive quarters, 19 of which have seen double-digit growth,” informs Deepak Jolly. “Over the last six years, Coca-Cola has delivered double-digit volume growth in India. Two of the company’s core sparkling brands – Sprite and Thums Up – are the country’s top-selling soft drink brands. Trademark Coca-Cola is one of our fastest growing sparkling brands and Maaza is India’s largest-selling juice drink. Kinley is the country’s largest retail packaged drinking water brand.”
Offering an unmatched portfolio of beverages, Coca-Cola India manufactures and markets brands like Coca-Cola, Diet Coke, Thums Up, Fanta, Limca, Sprite, Maaza, Minute Maid Pulpy Orange, Minute Maid Nimbu Fresh, Minute Maid Mixed Fruit, Minute Maid Apple, Minute Maid Guava, Minute Maid 100% Juice (Minute Maid Apple, Minute Maid Orange, Minute Maid Grape), Georgia, Georgia Gold, Kinley, Kinley Club Soda, and burn through a network of over two million outlets.
Seemingly, India remains among the top growth markets for the American multinational. Other major growth markets are Thailand with 18 per cent growth, Russia (8 per cent), Mexico (3 per cent), and Brazil (3 per cent).
Cola business of Coca-Cola
At the core of Coca-Cola’s business in India, as in the rest of the world, is its production and distribution network, called “Coca-Cola system”.
In India, the Coca-Cola system comprises a wholly-owned subsidiary of The Coca-Cola Company, namely Coca-Cola India Pvt Ltd, which manufactures and sells concentrate and beverage bases to authorised bottlers who use these to produce “our portfolio of beverages”, says Deepak Jolly. These authorised bottlers independently develop local markets and distribute beverages to grocers, small retailers, supermarkets, restaurants, and numerous other businesses. “In turn, these customers make our beverages available to consumers across India.”
The Coca-Cola system in India now operates 58 manufacturing plants, catalysing economic growth and providing employment, explains Deepak Jolly. “Coca-Cola, along with its bottling partners, has robust plans to capture growth in India with investments in innovation, expansion of distribution network, cold drink equipment placement, and augmentation of manufacturing capacity.”
The Coca-Cola system has already invested $2 billion in India between 1993 and 2011, refreshing and hydrating consumers more than 500 times per second. The company is also one of the largest buyers of sugar, mango pulp, and coffee beans in India.
Cola war
Coca-Cola and PepsiCo together dominate the market for carbonated soft drinks in India, where soda sales overall are estimated to total $1.05 billion. Coca-Cola enjoyed leadership position in carbonates in 2012, accounting for 60 per cent of the total value of sales, points out a study by Euromonitor. “Stronger distribution in the existing categories and entry in new markets in rural India helped the company retain its strong position,” says the study.
Coca-Cola and Pepsi are healthy and historic rivals and they would continue to be so, says Varma of IBA. “It is an ongoing market race all over the world wherever both these cola giants are present. India is not an exception. It is really difficult to say who is better than the other. India has enough room for both the companies to grow and multiply. The market would further open as they bring in more investments.”
Elections or no elections, PepsiCo’s India-born Nooyi said the firm would invest $5.5 billion by 2020 to more than double its capacity. “We are not guided by elections. We are guided by the potential of India. We are not waiting for any election results. We are investing in India for its economic story,” Nooyi had told recently after her meeting with Finance Minister P Chidambaram.
Pepsi had a head-start in India over Coca-Cola in its current avatar not only in terms of timing, but also in terms of distribution, reach, and product diversification (supported by Pepsi’s global M&A activity during the 1990s and 2000s), opines Devangshu Dutta, Chief Executive, Third Eyesight. “Pepsi has a larger proportion of non-carbonated beverages and a packaged snack portfolio that Coca-Cola lacks, which potentially provides a larger share of wallet to Pepsi and provides avenues for consumers who may be looking at relatively ‘wholesome’ options.”
Pepsi has 42 plants in India, including franchises. “India is a country with huge potential and it remains an attractive, high-priority market for Pepsi. We’ve built a highly successful business in India over the course of many years and we believe we’ve only scratched the surface. This investment is PepsiCo’s vote of confidence in India’s future,” Nooyi had said.
Coca-Cola’s growth will primarily be driven by rural areas, as urban areas are facing a degree of saturation, as well as shifting to healthier options, such as fruit/vegetable juice and bottled water. The company has equipped retail outlets in remote rural areas with solar coolers. Smaller pack sizes are also driving sales in rural areas whereas PET bottles are pushing sales in urban areas. However, the company does not have any immediate plans to get into ready-to-eat market.
Both – Coca-Cola and Pepsi – announcements (on investment) came on the same day and convey the underlying thrust of competition both the brands would engage in as they raise piles of money to stay ahead, avers Sridhar of Brand Comm. “Both the brands have good marketers and they must work for developing better connect and loyalty among customers. The pace at which they can travel into more rural areas with intriguing campaigns will ultimately decide the success rates.”
India is the largest market for Pepsi. It will continue to expand the range of foods and beverages in its portfolio. In India, it has eight brands that generate Rs. 1,000 crore or more in annual retail sales — Pepsi, Lay’s, Kurkure, 7UP, Slice, Mirinda, Mountain Dew, and Aquafina.
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