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British retailer Tesco's plans to focus on 2-3 key states may help it get an edge over competitors, such as Walmart and Carrefour, which are yet to enter multi-brand retail in India.
Apart from this, it will also allow the world’s third largest retailer to keep a close watch on the foreign direct investment (FDI) situation after the general elections in 2014.
Tesco on Monday got a green signal from Foreign Investment Promotion Board (FIPB) to enter the Indian multi-brand retail segment in joint venture with a Tata Group company. Tesco will pick up 50 per cent stake in Trent Hypermarket Ltd, a wholly-owned subsidiary of Trent Ltd, a Tata group company. It plans to invest $110 million (about Rs 680 crore).
A senior Government official indicated that the Tatas are likely to divest four stores owned by Trent Hypermarket before Tesco invests in the company. The stores located in Gujarat and Tamil Nadu will be divested as these two states are against FDI in multi-brand retail.
Even though the Government allowed 51 per cent FDI in multi-brand retail in September 2012, only 12 states and Union territories have agreed. Implementation of FDI is a state subject, which is why these companies are in wait-and-watch mode.
“Tesco is pleased that the FIPB has agreed to our proposal. This will now allow us to work on the practicalities of setting up the joint venture with Trent. Any such announcement will be made in the usual way,” a Tesco spokesperson said.
Tesco said it planned to set up stores in Maharashtra and Karnataka (two Congress-ruled states) which are pro-FDI. Trent Hypermarket runs 16 outlets in the southern and western regions with support from Tesco.
Anil Talreja, Partner, Deloitte Haskins and Sells, said, “It is good idea for a retailer like Tesco to focus on two or three states and achieve a critical mass rather than expand furiously pan-India. Several domestic and international retailers who had expanded too quickly are struggling to survive.”
After the recent Assembly elections, two key Congress-ruled states — Delhi and Rajasthan — saw a change in regime. This has put FDI in retail on the back-burner as the BJP (Rajasthan) and Aam Aadmi Party (Delhi) are opposed to FDI in retail.
Arvind Singhal, Chairman, Technopak said, “We believe other retailers will be watching Tesco’s before making investment. Tesco, by itself, can consolidate its presence in key states which are also huge procurement points and is logistically better.”
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