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December 23, 2013
Raghavendra
Kamath, Business Standard
Mumbai,
December 23, 2013
Tesco
has been powering Star Bazaar, Trent’s hypermarket for a
couple of years. The euro 72 billion Tesco was a back-end partner
and provided sourcing and technical knowhow. While announcing
the formal joint-venture with Tesco last week (following the easing
of retail FDI norms), Noel Tata, vice-chairman of the Tata’s
retail arm, had said that the company’s understanding of
the market along with the UK-based retailer’s expertise would
allow them to leverage the potential of the India’s retail
scene.
“As a JV partner, Tesco’s motivation to bring in its systems and knowhow is higher,” says Devangshu Dutta, chief executive of retail consultant Third Eyesight. Dutta says that senior Tesco executives must have been involved in the Tata business earlier but Tesco’s management involvement can only go up. He reminds that Tesco partnered with Tata not just to remain a back-end player but also to study the retail front-end.
Both Tesco India and Trent did not respond to queries on the subject. Retail experts say that Tesco is known for three areas of expertise.
Knowing its customer
Tesco’s customer relationship management (CRM) is well documented. It has the popular loyalty card ‘Clubcard’. It also owns dunnhumby, one of the biggest data analytics companies in the world. “In the UK, depending on what customers have bought in the past, it sends customised mailers to shoppers, leveraging its database,” says Abheek Singhi, partner and director at management consultancy Boston Consulting Group (BCG). Adds Arvind Singhal, chairman of Technopak Advisors, “It is its strength to analyse every transaction and design pricing and promotions at each store that makes it successful.”
Tesco has not brought in its CRM and data analytics systems to India yet because of Star Bazaar’s limited scale of operations. Neither has it been able to introduce its good-better-best (value, premium and finest segments) approach.
However, it has helped the Indian chain across its 16 stores across the country. Tesco provides its proprietary “planogram” software to Star Bazaar, which helps the latter with a better display of products. For instance, Tesco told Star Bazaar that the retailer need not stock soaps and shampoos near the entrance to the stores. The customer will seek out these essential items wherever they are kept in the store. Rather, it advised Trent to use the vantage position to showcase products with a novelty element and hence, commanding a higher margin, for more profitable sale.
Private brands galore
Tesco has introduced hundreds of its SKUs (stock keeping units) in Star Bazaar stores from personalcare to packaged foods. While the contribution of private labels to Star Bazaar’s revenue is in single digits, Tesco sees 45 per cent of business from private labels.
According to executives in the know, Tesco has played a role in developing Star Bazaar’s own private labels. “In the UK and other countries, shoppers prefer Tesco’s private lablels over other international brands due to their quality and pricing. We need to see how they will do it in India,” says a director of an international management consultancy who did not wish to be quoted.
Formatting the market
According to the proposal sumitted to the government, the JV will operate in India through a chain of stores under various banners such as Star Bazaar, Star Daily, Star Market, branded as ‘A Tata and Tesco Enterprise’. The plan is to open three to five stores every financial year.
Experts point out that Tesco’s calibre in running multiple formats would come in handy. Tesco runs over 6,700 stores across 12 markets and runs hypermarkets, supermarkets, compact hyperstores , express stores and an online venture.
Star Bazaar has tried another format besides hypermarkets, having launched a neighborhood store called Star Daily in Pune, which is supposed to be based on Tesco Express.
The chief executive of a national retail chain says Tesco’s best practices might just help Star Bazaar break even faster. Though Star Bazaar had set up its first store in 2004, it is yet to achieve profits. The chain registered a net loss of Rs 72 crore on net sales of Rs 785 crore in 2012-13.
Many consultants say Tesco could also bring in its renowned ‘Tesco in a Box’ – its supply chain systems that are deployed in a new country.
Dutta says, “When a retailer enters a new country, there is naturally an erosion in best practices and processes as markets are different from each other. Tesco’s standardised system in inventory management, supply chain and store operations prevents that erosion.”
Tesco already plays a key role in the supply chain of Star Bazaar.
It manages three distribution centres, that ensure high availability
and supply to the stores. Armed with its advanced demand forecast
system, auto-ordering mechanism and advanced warehouse management
system, Tesco has managed over 80 per cent fill-rate (the number
of times shelves get filled correctly against the orders placed)
at Star Bazaar stores. The industry average in modern retail hovers
between 60 and 65 per cent, as against 90-95 per cent in Europe
and the US.
(Sourced from Business Standard .)
admin
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.)
