Tesco Picks Tata’s Trent for India Wholesale Venture
on August 12th, 2008 at 8:13 amTesco Plc, the U.K.’s biggest supermarket chain, chose Tata Group’s Trent Ltd. as its partner for a chain of wholesale stores in India, almost two years after ending talks on a venture with the Bharti Group.
Tesco will invest 60 million pounds ($114 million) in the venture over two years, the Cheshunt, England-based company said in an e-mailed statement today.
The British retailer enters the Indian market as sales at chain stores may increase more than eightfold to $97 billion by 2012, according to consultant Technopak Advisors Pvt. Overseas retailers such as Tesco and Wal-Mart Stores Inc. are forming wholesale ventures in the South Asian nation as local rules bar them from opening or buying stakes in retail stores.
Bentonville, Arkansas-based Wal-Mart formed a wholesale joint venture with the Bharti Group, owned by billionaire Sunil Mittal, for a wholesale venture in August 2007.
The wholesale outlets of the Tesco venture will sell food, grocery items and other products to small retailers and restaurant owners, Tesco said.
Trent will also have an exclusive franchise agreement with Tesco for its local retail operations, the Mumbai-based company said in a separate statement. The accord will give the Indian company retail stores access to Tesco’s supply chain and other technologies, Trent said.
Under the deal with Tata Group’s retail arm Trent Tesco will, for a fee, provide its retail expertise and technical capability to support the development of its hypermarket business, Star Bazaar.
Trent currently has four hypermarkets, with plans to grow to 50 stores over the next five years.
“This is another exciting development for Tesco. It complements our entries into China and the United States, giving us access to another of the most important economies in the world,” Tesco Chief Executive Terry Leahy said in a statement.
“Our agreement (with Tata) will enable us to share our international retail expertise, supporting Trent in the development of their Star Bazaar hypermarket business and benefiting Indian
Under the deal with Tata Group’s retail arm Trent Tesco will, for a fee, provide its retail expertise and technical capability to support the development of its hypermarket business, Star Bazaar.
Trent currently has four hypermarkets, with plans to grow to 50 stores over the next five years.
The Tata Group’s business interests span chemicals, hotels and tea, and it also owns some of Britain’s best-known businesses, including steelmaker Corus and the Jaguar and Land Rover car brands.
I think that the alliance between Tesco and Trent, while essentially amounts to a franchise agreement and not a joint-venture is good for both parties – especially for the latter, as I point out in my post (check it out at: http://www.moneyvidya.com/blog/?p=250). While Trent has to pay a fee for access to Tesco’s expertise (IT systems, infrastructure mgmt etc.) I think that this is a small price to pay for things that are essential requisites for cost efficiency in this space. Tesco also benefits, by learning how to operate in an Indian environment before jumping in independently into this format. You might also be interested to read my analysis on what impact the arrival of large format organised retail has on consumer goods manufacturers margins: http://www.moneyvidya.com/blog/?p=258
Gautam Kshatriya
gautam.kshatriya@moneyvidya.com
http://www.moneyvidya.com
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