This morning, Bharti Enterprises confirmed that it is setting up a joint venture with Wal-Mart that will see the two companies “jointly explore business opportunities in India.” Bharti signed a memorandum of understanding (MoU) with Wal-Mart, giving the world’s largest retailer a foothold in the country’s burgeoning retail sector.
Understanding local shopping habits is critical to Wal-Mart’s success in India. These barrels, in an RPG Group-owned Spencer’s hypermarket, allow shoppers to measure their own quantities of loose produce. In parallel with Wal-Mart, Tesco has been in negotiations with Bharti to set up a joint venture. However, talks collapsed last week, with unconfirmed reports suggesting that the deal fell through after the two parties failed to agree on the pace of expansion, with Bharti pushing for an aggressive store opening plan. Tesco, however, is still keen to enter the Indian market with a spokesperson confirming, "We remain excited by the opportunities available in India and continue actively to review how best we might enter the market." As for the Wal-Mart-Bharti stores, Bharti will manage the outlets while Wal-Mart will provide franchise services including technology. Sunil Bharti Mittal, the company’s chairman, said, "Wal-Mart was keen to get into India. I think they have chosen the right partner. It is going to be a large investment ... We are going to be a big player in this market." It will take several months before the stores open for business with Mr Mittal hoping to open the first outlet by August 2007. According to Mr Mittal, eventually there will be "several hundred stores across the country (that) will probably carry both brand names." It is understood that the Indian joint venture will include hypermarkets and neighbourhood stores. Bharti is already in talks with real estate developers to either buy or lease land to set up its operations. Mr Mittal confirmed that the two partners will have equal stakes in the joint venture.
Understanding local shopping habits is critical to Wal-Mart’s success in India. These barrels, in an RPG Group-owned Spencer’s hypermarket, allow shoppers to measure their own quantities of loose produce.
In parallel with Wal-Mart, Tesco has been in negotiations with Bharti to set up a joint venture. However, talks collapsed last week, with unconfirmed reports suggesting that the deal fell through after the two parties failed to agree on the pace of expansion, with Bharti pushing for an aggressive store opening plan. Tesco, however, is still keen to enter the Indian market with a spokesperson confirming, "We remain excited by the opportunities available in India and continue actively to review how best we might enter the market."
As for the Wal-Mart-Bharti stores, Bharti will manage the outlets while Wal-Mart will provide franchise services including technology. Sunil Bharti Mittal, the company’s chairman, said, "Wal-Mart was keen to get into India. I think they have chosen the right partner. It is going to be a large investment ... We are going to be a big player in this market." It will take several months before the stores open for business with Mr Mittal hoping to open the first outlet by August 2007.
According to Mr Mittal, eventually there will be "several hundred stores across the country (that) will probably carry both brand names." It is understood that the Indian joint venture will include hypermarkets and neighbourhood stores. Bharti is already in talks with real estate developers to either buy or lease land to set up its operations. Mr Mittal confirmed that the two partners will have equal stakes in the joint venture.
Restrictive Market Entry Under current law, foreign direct investment (FDI) from retailers selling multiple brands is not permitted in the country. This has prompted big players such as Wal-Mart to consider alternative routes to market (eg. partnering with local companies). The FDI law was imposed in 1997 to protect local retailers. However, a number of international operators have entered the market such as Dairy Farm in conjunction with RPG, Metro with its cash & carries and Shoprite and Marks & Spencer with a franchise network. Metro was able to enter the lucrative Indian market as a cash & carry operator in 2003 In January 2006, the government eased FDI restrictions by allowing 51% FDI by single brand companies like Reebok, Nokia or Adidas. It is thought that if deregulation does take place, it is likely to be granted in phases (as occurred in China between 2001 and 2004), with 26% FDI allowed for the first two years, 49% immediately after, and 74% after three years. Huge growth potential With a large and youthful population, India is set to become increasingly important for modern retailers. By 2010, the country’s USD350 billion retail sector is projected to grow by more than 50%, underpinned by strong economic growth and rising incomes. As a result, it will rise up the global rankings from the seventh to the fifth-largest retail market in the world. Despite its failed negotiations with Bharti, Tesco continues to be a likely candidate for market entry, whilst Carrefour is also in the early stages of talks with Dubai Landmark Group’s Indian unit, Lifestyle International, about opening up to 200 stores in the future. ",1]
The Wal-Mart-Bharti venture will put pressure on domestic players such as Pantaloon’s Big Bazaar.
Restrictive Market Entry
Under current law, foreign direct investment (FDI) from retailers selling multiple brands is not permitted in the country. This has prompted big players such as Wal-Mart to consider alternative routes to market (eg. partnering with local companies). The FDI law was imposed in 1997 to protect local retailers. However, a number of international operators have entered the market such as Dairy Farm in conjunction with RPG, Metro with its cash & carries and Shoprite and Marks & Spencer with a franchise network.
Metro was able to enter the lucrative Indian market as a cash & carry operator in 2003
In January 2006, the government eased FDI restrictions by allowing 51% FDI by single brand companies like Reebok, Nokia or Adidas. It is thought that if deregulation does take place, it is likely to be granted in phases (as occurred in China between 2001 and 2004), with 26% FDI allowed for the first two years, 49% immediately after, and 74% after three years.
Huge growth potential
With a large and youthful population, India is set to become increasingly important for modern retailers. By 2010, the country’s USD350 billion retail sector is projected to grow by more than 50%, underpinned by strong economic growth and rising incomes. As a result, it will rise up the global rankings from the seventh to the fifth-largest retail market in the world.
Despite its failed negotiations with Bharti, Tesco continues to be a likely candidate for market entry, whilst Carrefour is also in the early stages of talks with Dubai Landmark Group’s Indian unit, Lifestyle International, about opening up to 200 stores in the future.
In addition to a large population with rising incomes, India is also attractive to foreign grocers because of its high level of fragmentation. The market is home to few major chains or strong local competition. In fact, the top 5 food retailers account for under 2% of the entire market: Compared to other retail markets, it is clear that India is one of the most fragmented in the world.
India: Top 10 Retailers, 2005 Retail Banner Sales (USD) 2000 2005 Company Retail Banner Sales (USD mn) Market Share Retail Banner Sales % No. of Stores Retail Banner Sales (USD mn) Market Share Retail Banner Sales % No. of Stores 1 Pantaloon 44 0.13 7 645 1.19 298 2 K Raheja Corp",1]
In addition to a large population with rising incomes, India is also attractive to foreign grocers because of its high level of fragmentation. The market is home to few major chains or strong local competition. In fact, the top 5 food retailers account for under 2% of the entire market:
Compared to other retail markets, it is clear that India is one of the most fragmented in the world.
India: Top 10 Retailers, 2005 Retail Banner Sales (USD)
Ahead of The Game For Wal-Mart, this deal marks its entry into what is fast becoming one of the world\'s key retail markets. Like China, with a large and growing middle class, India’s retail sector is set to deliver immense growth. Already active in sourcing from India, the joint venture will enable Wal-Mart to establish a foothold in retailing ahead of deregulation. The global leader is likely to face some stiff competition in the future from familiar foes such as Carrefour and Tesco, as well as domestic operators such as Pantaloon. Perhaps the biggest opposition will be provided by Reliance, India’s petroleum to textiles conglomerate. The company is a recent entrant to grocery retailing and has unveiled some eye-watering growth targets for its grocery enterprise. It has made no secret of its goal to become the \'Indian Wal-Mart,\' suggesting that the race for supremacy in Indian retailing is set to become a compelling contest.",
Source: Planet Retail Ltd -www.planetretail.net
Wal-Mart Ahead of The Game
For Wal-Mart, this deal marks its entry into what is fast becoming one of the world's key retail markets. Like China, with a large and growing middle class, India’s retail sector is set to deliver immense growth. Already active in sourcing from India, the joint venture will enable Wal-Mart to establish a foothold in retailing ahead of deregulation. The global leader is likely to face some stiff competition in the future from familiar foes such as Carrefour and Tesco, as well as domestic operators such as Pantaloon. Perhaps the biggest opposition will be provided by Reliance, India’s petroleum to textiles conglomerate. The company is a recent entrant to grocery retailing and has unveiled some eye-watering growth targets for its grocery enterprise. It has made no secret of its goal to become the 'Indian Wal-Mart,' suggesting that the race for supremacy in Indian retailing is set to become a compelling contest.
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