News: Tesco close to deal with Bharti for retail bang
(TNN 31/05/2006) Mumbai - Tesco, the world’s third-largest retailer, is understood to be finalising an agreement with Sunil Mittal’s Bharti Enterprises for a separate retail venture to cash in on a surging, consumer-driven boom in Asia’s third-largest economy.
Tesco proposed JV with Bharti Enterprises, the holding company which is controlled by Sunil Mittal’s family, will focus primarily on selling fresh foods, staples, grocery and other convenience foods across cities and towns in India.
Sunil Mittal, chairman and group managing director, Bharti Enterprises, said that the company had yet to finalise a foreign partner.
“We are in talks with a few of them and will finalise it in the next few months,” he said. However, sources said that Bharti had finalised Tesco as its retail partner and that negotiations were in final stages. Officials of both the companies are believed to have spent the past four months hammering out the details.
The joint venture vehicle will be a separate retail company. The agreement is being structured in a different manner to ensure that Tesco does not own any stake in the front-end, retail arm and that it does not violate any existing rules. Sources close to the discussions said that there would be a profit-sharing agreement between Tesco and Bharti and clauses to enable Tesco to pick up a stake in the retail venture as and when FDI rules are changed.
On one hand, India does not allow FDI in multi-brand retail stores. On the other hand, foreign companies can own up to 51% in single-brand retail stores. Tesco is very clearly focusing on building up capabilities in the country and preparing for a strong presence in the Indian market until the FDI rules in retail are relaxed, the sources added.
Tesco is the UK’s biggest retail chain employing more than 2,50,000 people, with annual sales of more than 40bn pounds and a pre-tax profit of over 3bn pounds. Its imminent entry signals, the strong interest among global retailing giants for a presence in India which today offers more opportunities for growth, thanks to its growing middle class and consumption-driven boom.
But Bharti is not the only group in Tesco’s sights. The UK-based giant is already believed to have entered the Indian market through an understanding with Home Care Retail Mart, founded by a former promoter of D Mart. Home Care has already launched a hypermarket format called Magnet in Mumbai, the sources said.
Ashok Maheshwari, one of the main promoters and managing director of retail chain D Mart, quit to start Home Care Retail Mart sometime ago. A prominent NRI business group is understood to be a strategic investor in the new retail venture, the sources said.
Tesco, the sources said, is believed to have invested in the venture through a structured arrangement to ensure that no FDI norms are violated.
The Magnet retail chain is expected to be scaled up to 50 stores by ‘10. The 50,000 sq ft Magnet with 23 product categories and 26,000 stock keeping units (SKUs) has on display everything from fruits to furniture and fixtures. Bharti Enterprises has forayed into agri business through FieldFresh Foods, a 50:50 joint venture with the Rothschild Group-controlled ELRo Holdings India.
The company, a back-end supply chain, exports fresh fruits and vegetables to markets in the European Union, the UK, South East Asia and West Asia. Fieldfresh Foods is handled by Sunil Mittal’s brother Rakesh Mittal, while the retail venture is handled by Rajan Mittal.
The country has embarked on the process of opening up the retail sector by allowing up to 51% foreign equity in single-brand retail in February. Bharti and Tesco already have business dealings as Bharti supplies fresh products through its company, FieldFresh Foods to Tesco.
US billionaire investor Warren Buffett has invested $329m in Tesco which operates across 10 markets. The first Tesco store was opened in 1929, but it is only since the 1990s that Tesco significantly increased its retail focus. In addition to food, the company now covers non-food products, personal finance, internet retailing, home shopping and petrol retailing in the UK, with Tesco.com and home shopping also operating in the Republic of Ireland and South Korea.
Tesco’s Hindustan Service Center in Bangalore has developed an integrated suite of applications called `Tesco in a Box’ which is shipped to any country where Tesco opens a new store, like it did recently in Turkey. Also, the Bangalore centre supports the British retailer’s US operations.
Tesco proposed JV with Bharti Enterprises, the holding company which is controlled by Sunil Mittal’s family, will focus primarily on selling fresh foods, staples, grocery and other convenience foods across cities and towns in India.
Sunil Mittal, chairman and group managing director, Bharti Enterprises, said that the company had yet to finalise a foreign partner.
“We are in talks with a few of them and will finalise it in the next few months,” he said. However, sources said that Bharti had finalised Tesco as its retail partner and that negotiations were in final stages. Officials of both the companies are believed to have spent the past four months hammering out the details.
The joint venture vehicle will be a separate retail company. The agreement is being structured in a different manner to ensure that Tesco does not own any stake in the front-end, retail arm and that it does not violate any existing rules. Sources close to the discussions said that there would be a profit-sharing agreement between Tesco and Bharti and clauses to enable Tesco to pick up a stake in the retail venture as and when FDI rules are changed.
On one hand, India does not allow FDI in multi-brand retail stores. On the other hand, foreign companies can own up to 51% in single-brand retail stores. Tesco is very clearly focusing on building up capabilities in the country and preparing for a strong presence in the Indian market until the FDI rules in retail are relaxed, the sources added.
Tesco is the UK’s biggest retail chain employing more than 2,50,000 people, with annual sales of more than 40bn pounds and a pre-tax profit of over 3bn pounds. Its imminent entry signals, the strong interest among global retailing giants for a presence in India which today offers more opportunities for growth, thanks to its growing middle class and consumption-driven boom.
But Bharti is not the only group in Tesco’s sights. The UK-based giant is already believed to have entered the Indian market through an understanding with Home Care Retail Mart, founded by a former promoter of D Mart. Home Care has already launched a hypermarket format called Magnet in Mumbai, the sources said.
Ashok Maheshwari, one of the main promoters and managing director of retail chain D Mart, quit to start Home Care Retail Mart sometime ago. A prominent NRI business group is understood to be a strategic investor in the new retail venture, the sources said.
Tesco, the sources said, is believed to have invested in the venture through a structured arrangement to ensure that no FDI norms are violated.
The Magnet retail chain is expected to be scaled up to 50 stores by ‘10. The 50,000 sq ft Magnet with 23 product categories and 26,000 stock keeping units (SKUs) has on display everything from fruits to furniture and fixtures. Bharti Enterprises has forayed into agri business through FieldFresh Foods, a 50:50 joint venture with the Rothschild Group-controlled ELRo Holdings India.
The company, a back-end supply chain, exports fresh fruits and vegetables to markets in the European Union, the UK, South East Asia and West Asia. Fieldfresh Foods is handled by Sunil Mittal’s brother Rakesh Mittal, while the retail venture is handled by Rajan Mittal.
The country has embarked on the process of opening up the retail sector by allowing up to 51% foreign equity in single-brand retail in February. Bharti and Tesco already have business dealings as Bharti supplies fresh products through its company, FieldFresh Foods to Tesco.
US billionaire investor Warren Buffett has invested $329m in Tesco which operates across 10 markets. The first Tesco store was opened in 1929, but it is only since the 1990s that Tesco significantly increased its retail focus. In addition to food, the company now covers non-food products, personal finance, internet retailing, home shopping and petrol retailing in the UK, with Tesco.com and home shopping also operating in the Republic of Ireland and South Korea.
Tesco’s Hindustan Service Center in Bangalore has developed an integrated suite of applications called `Tesco in a Box’ which is shipped to any country where Tesco opens a new store, like it did recently in Turkey. Also, the Bangalore centre supports the British retailer’s US operations.
posted by InCar Group Press Room at 11:05
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