Spar plans tie-ups with multiple firms

Sapna Agarwal, Mint (A Wall Street Journal partner)

Mumbai, January 19, 2012

Dutch-based supermarket chain Spar International plans to partner with multiple firms to expand its retail presence in India, a senior company executive said on Wednesday.

This is a model the retailer practices globally, but in India currently it has at least 10 hypermarkets—in Karnataka, Maharashtra, Andhra Pradesh and the National Capital Region, among other places—in partnership with only Landmark group’s Max Hypermarket India Pvt. Ltd.

“The new partnerships will be for entering new regions and developing new formats to penetrate the market,” said Gordon Campbell, managing director of Spar International.

The chain follows a licensee model globally and has multiple partners in other emerging markets. For instance, in China, it has six retail partners and in Russia, eight.

In each of these countries, too, it will increase the number of licensees to 20 by 2015, Campbell said, but declined to give details on the number of partners the company would seek in India. It is looking to open 20 stores in the next three years with its existing partner Max. “So far, Max has invested close to Rs.600 crore in setting up hypermarkets and all our stores have achieved break-even within six months of starting operations,” added Campbell.

The new partners will help Spar aggressively ramp up the retail chain’s operations and expand its reach. For this, it is also tweaking its strategy by entering the supermarkets retail format.

In contrast, home grown retailers such as Reliance Retail Ltd and Aditya Birla Retail Ltd, which runs the More chain, have been focusing on the hypermarket format in the last few quarters after opening hundreds of supermarkets.

Spar’s global rival Wal-Mart Stores Inc. is present in India in a joint venture with Bharti Enterprises, and French retailer Carrefour SA is in the cash-and-carry business in which 100% foreign direct investment (FDI) is allowed.

The Indian government has put liberalization of foreign investment in multi-brand retail on hold in the face of resistance from within and outside the ruling coalition.

Earlier this month, it allowed 100% foreign direct investment in single-brand retail, but did not give any indication when it would free up multi-brand retail.

The size of retail industry in India is $450 billion and 8% of this market is organized retail, according to Technopak Advisors Pvt. Ltd, a retail consultancy.

“There is a huge potential for hypermarkets in India. The challenge is finding the right real estate,” said Devangshu Dutta, chief executive officer of Third Eyesight, a retail consultancy firm.