Tesco to go slow on India operations

Move follows record global loss, seen as a setback for multi-brand retail

The UK's leading retail chain Tesco is likely to go slow on expansion in India, after the record $9-billion annual loss it announced last week. The retailer, which has in the recent past exited many countries, including the US and Japan, might still hold on to India as these still are its early days here.

Last year, the company had announced an investment of $110 million (Rs 850 crore at the time) in India. It was the first international group to enter the country's multi-brand retail space after the government permitted 51 per cent foreign investment in the sector.

Asked whether it would review its India plans and exit the country following the group's record global loss, a spokesperson for Tesco told Business Standard: "Our position on India is longstanding and remains unchanged." On whether the chain would go slow in India, the spokesperson did not offer any further comment. Sources, however, pointed out that Tesco was unlikely to put more money in the country in the near term.

MULTI-BRAND SETBACK

• Tesco was the first international group to enter India’s multi-brand retail space after the government permitted 51 per cent foreign direct investment in the sector
• French retail chain Carrefour, which too had multi-brand ambitions here, recently left the country
• US’ Walmart snapped its partnership with Bharti and now runs only cash-and-carry stores, besides online B2B operations
• Germany’s Metro, the oldest foreign chain with presence in India’s cash-and-carry space, does not wish to enter the multi-brand retail sector

If Tesco goes slow in India, it will also mean another setback for the country's multi-brand retail sector, say analysts and industry representatives.

French retail chain Carrefour, which too had multi-brand ambitions here, recently left the country. Carrefour had been operating cash-and-carry (wholesale) business, where 100 per cent foreign direct investment hardly faced political resistance. But the French chain exited India as its goal to enter the supermarket business failed.

The world's largest retail chain, the US' Walmart, maintains that it is focused on wholesale business in India, though it had entered the country in partnership with the Bharti group to open multi-brand stores. Walmart snapped its partnership with Bharti and now runs only cash-and-carry stores, besides online business-to-business operations.

Germany's Metro, the oldest foreign chain with presence in India's cash-and-carry space, has never wished to enter multi-brand sector.

That implies there is no major global entity at present that could invest in India's multi-brand retail story.

Tesco, in an equal joint venture with Tata group's Trent, had expressed its intention to operate multi-brand stores in Karnataka and Maharashtra. Under the current multi-brand rules, a state can decide on whether or not to allow foreign investment in a certain region.

While the previous central government had opened up the retail sector to foreign direct investment, with the state caveat, the current Bharatiya Janata Party (BJP) -led one is opposed to foreign investment in the sector. Of the two states that are Tesco's chosen regions, Maharashtra is now ruled by BJP. Political opposition to retail FDI is another reason why the British group might go slow in India.

After Tesco's huge losses, global analysts have recommended the company continue closure of stores and cut staff strength around the world. At present, it has close to 8,000 stores worldwide.

Competition from e-commerce is among the reasons for a decline in the chain's sales. Though the group had ambitious plans for China, last year it had to sell a majority stake in the Chinese venture to local firm China Resources Enterprise. Though its other Asian businesses - those in Thailand, South Korea and Malaysia - have also seen declines in profit, Tesco's Asian stores have fared better than the UK ones.