Is Tesco’s loss, Walmart’s gain?

 

Although, India’s communications czar Sunil Mittal continues to insist that talks for an alliance with the world’s third biggest retailer, the UK based, $ 75 billion, Tesco are still on, the local and foreign media is convinced about the Mittal owned Bharati Enterprises’ imminent tie-up with the world’s biggest, the US based, $416 billion, retailer Walmart.

sunil_mittalSince, the Indian government policy does not permit majority FDI in front end retail for multi brand retail chains like Walmart, a franchise agreement between the two partners appears to have been worked out as a way around. Although, final contours of the deal will emerge only after the formal announcement, Walmart is likely to allow the use of its brand name through a franchisee agreement. Bharati Alliance would, thus, be required to pay a pre-determined royalty fee for the use of Walmart brand name. It is also believed that the required investment in the real estate and infra structure would be made by an outsider, perhaps, a private equity fund.

The Bharati-Walmart alliance, like its counterpart Reliance Retail is likely to roll out multi format hypermarkets, super markets and grocery stores, with an initial investment of Rs. 500 crore, which eventually may go up to Rs. 7,5000 crore.

It may be recalled that Reliance has already begun the roll out of its Rs. 25,000 crore retail initiative, earlier this month, with the unveiling of the first cluster of 11 neighbourhood convenience stores in Hyderabad. Another, cluster of 28 such stores is said to be ready for an eary opening. Among India’s other industrial majors, while Tatas are already present in the retail business through group companies, Trent and Tata Infiniti, which are operating highly succesful Westside, Star Bazaar, Landmark and Croma stores, Birlas are preparing for a Rs. 10,000 crore retail roll out in the coming months.

Wal-Mart already sources goods worth $1.5 billion from India. This is expected to rise to $10 billion over the next few years.

While, the win win deal will give Wal-Mart access to Bharti’s domestic communications network and an understanding of India customer, Bharti will get access to Wal-Mart’s cutting edge logistics prowess, management systems and overseas network.


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