Tesco will launch a wholesale cash-and-carry business in India, with an initial investment of up to ú60 million ($114 million) in the first two years. The initial outlets will be based in Mumbai and will offer fresh food, grocery and non-food products to small retailers, restaurants and other business owners.
Tesco is also entering an exclusive franchise agreement with Trent, the retail arm of the Tata Group. Trent will draw on Tesco's retail expertise and technical capability to support the development of its hypermarket business, Star Bazaar, for which Tesco will earn a fee. Trent currently has four hypermarkets, with plans to grow this to 50 over the next five years. Tesco's wholesale business will supply merchandise to Star Bazaar.
The investment by Tesco conforms with Indian regulations for retail businesses which do not allow foreign investment in multi-brand retail, but allow it in wholesale businesses and also permit franchise agreements.
Tesco added that it already sources over ú170 million worth of Indian products each year via offices in Delhi, Bangalore and Tirupur.
"This (development) complements our entries into China and the United States, giving us access to another of the most important economies in the world,ö says Sir Terry Leahy, CEO of Tesco in a written statement. "We are delighted to be working with Tata, one of India's largest and most respected business groups.ö
Tesco is the UK's largest retailer, operating hypermarkets, superstores, supermarkets and convenience stores. Becoming an international player is part of its articulated five-part strategy for growth. The Tesco group had sales of ú51.8 billion with pre-tax profits of ú2.8 billion in the financial year to February 2008 derived from 3,729 stores in 13 countries. This includes 814 stores in Asia (China, Japan, Malaysia, South Korea and Thailand).
Tesco entered China in July 2004 through a 50:50 joint venture in Hymall stores, then a chain of 25 hypermarkets. It has doubled this network and in 2007 increased its stake in the business to 90%.
More recently, in May, Tesco paid $1.86 billion for KoreaÆs 36 Homever discount stores, in its biggest ever takeover. TescoÆs South Korean unit, Home Plus, which already operates discount stores is the second largest discounter in Korea. Tesco entered Korea in 1999 and the country is its most profitable overseas market. The Homever acquisition doubled TescoÆs store network.
The Tata Group is an India-headquartered business group with a growing international business. It has recently completed a number of international acquisitions with the $14 billion purchase of steelmaker Corus in the UK in early 2007 û which still holds the record as IndiaÆs largest cross-border outbound M&A deal. TataÆs unaudited revenues for fiscal 2008 are estimated at around $55 billion, of which 65% is from business outside India.
Trent operates 31 department stores under the Westside brand across 19 cities. Trent entered the hypermarket business in 2004 with Star Bazaar, which currently has a presence in Ahmedabad, Bangalore and Mumbai.
Trent informed the Bombay Stock Exchange yesterday that its board of directors has approved the Tesco association. Trent shareholders welcomed the news pushing the share price up 10% to Rs545.85 ($12.86) in trading yesterday. Tesco shares traded marginally up to ú3.97 on the London Stock Exchange.