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  1. Analysis
March 28, 2006

Local and foreign retailers compete for Indian foothold

All eyes are on India following Bharti’s announcement that it will set up a retail JV with a foreign company, most likely Tesco or Wal-Mart. But other large local players are jostling with Barthi for first mover advantage, as Bhavna Rathore reports.

All eyes are on India following Bharti’s announcement that it will set up a retail JV with a foreign company, most likely Tesco or Wal-Mart. But other large local players are jostling with Barthi for first mover advantage, as Bhavna Rathore reports.


New Delhi based Bharti Group, one of India’s biggest telecom providers, is entering the food retail business with an international partner, just-food reported last week. While the company has confirmed its plans, the identity of its international partner is not yet clear, although names in the mix predictably include Wal-Mart, Tesco and Carrefour. 


Significantly, Bharti’s recently announced agri-business plans might come in handy to support the back-end of a jumbo food retail sortie. The group has acquired more than 3,000 acres of land in the state of Punjab recently. 


Bharti’s venture is significant in that it would be the first entry of an international retail chain since the Indian government recently permitted Foreign Direct Investment (FDI) in the sector.


On the other hand, Wal-Mart has been looking to enter the Indian retail market for a long time. India holds a special attraction for retailers due to a steadily growing and robust economy, high disposable income and a large population of middle and upper middle class. An Indian venture may also act as a two way street as retailers like Wal-Mart and Tesco do a substantial chunk of their sourcing from the country.


The Bharti Group is not alone in planning a retail foray. In Mumbai, the industrial capital of India, the Reliance Group – India’s second largest industrial conglomerate with an enviable reputation for mega projects including Asia’s largest oil refinery – is readying plans to enter the retail sector and true to its ambitions, the group’s war chest for the foray is a whopping INR100bn (US$2.25bn). Reliance is planning a series of hypermarkets, supermarkets and large retail stores across the country.


The announced entry of the Reliance group and now the Bharti Group is being touted as a sign of Indian retail sector’s maturity. From local corner shops, grocers and flea markets, urban India is fast progressing towards mega retail chains. Already a number of large regional players have a retail presence across the country. High profit margins and a strong growth potential has attracted corporate houses like the Piramals, Tatas, Rahejas, ITC, S Kumars, RPG Enterprises, Pantaloon and now Bharti Enterprises and Reliance.


According to a Confederation of Indian Industries (CII) report, retail sales in India amounted to about INR7400bn in 2002, expanding at an average annual rate of 7% during 1999-2002. More importantly, retail sales are predicted to rise more rapidly than consumer expenditure during 2003-08 with the forecast growth during 2003- 2008 at 8.3% per year, compared with 7.1% for consumer expenditure.


With the entry of the Bharti and Reliance Groups, retail is expected to get much more structured. Reliance maintains that a huge retail foray like theirs will be beneficial for farmers as they will get better value for their crop, selling directly to Reliance. At the same time, with the entry of retailer brands, the existing packaged food manufacturers may be heading for tough times.


General trends indicate that private label ranges like Big Bazaar and Sabka Bazaar are cheaper and more highly regarded than established packaged food brands occupying the same shelf space. The entry of mega retail chains could also have an adverse impact on local shopkeepers, who may find innovation is vital to their survival. 

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