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Tesco enters India with cash-and-carry, Tata deal

LONDON/MUMBAI - Tesco Plc, the world's No.3 retailer, plans to set up shop in India with a wholesale cash-and-carry business and a deal to help Indian conglomerate Tata Group grow its hypermarket business.

The long-awaited move into the world's second most populous country is the latest expansion by Tesco as it looks for new profit streams beyond its dominance of the British grocery market. Last year it opened stores in the United States and last month it announced a big push into banking.

It also mirrors a move by U.S. rival Wal-Mart, which has teamed up with India's Bharti Enterprises, as the world's top store groups seek a foothold in India's $350 billion retail industry, amid forecasts it could double in size by 2015.

Foreign multi-brand retailers are currently limited to wholesale or licence and franchise arrangements in India.

Tesco International and IT Director Philip Clarke told reporters on Tuesday that the firm was keen to set up its own retail business in India, should the legislation change.

"If and when it changes, our wholesale business and the agreement with the Tata Group gives us great experience of the Indian marketplace and consumer," he said on a conference call.

BlueOar analyst Greg Lawless welcomed the move.

"It's a sensible deal. They're not betting the farm on it," he said. "It gets them entry into the market and that's what it's all about. But it's a very, very long term one."

Star bazaar

Tesco said it would make an initial investment of up to 60 million pounds ($115 million) in the cash-and-carry business over the first two years.

It will also, for an undisclosed fee, provide Tata Group with its retail expertise and technical capability to help develop its hypermarket business.

The Tata Group's interests span chemicals, hotels, telecoms and tea, and it owns two of Britain's best-known businesses as well -- steelmaker Corus and Jaguar and Land Rover cars.

Its retail arm, Trent, runs four hypermarkets and plans to grow to 50 stores over the next five years, supplied by Tesco's new cash-and-carry business.

Trent shares jumped more than 18 percent in a weak Mumbai market, and at 0920 GMT were up 11.5 percent at 554 rupees. In London, Tesco was up 0.7 percent at 396.9 pence, giving it a market value of about 30 billion pounds.

India has long been viewed as a potential gold mine for international store groups. While dwarfed by the $3.1 trillion U.S. retail market, it is growing much more quickly as living standards rise and is still extremely fragmented.

Less than 5 percent of the industry is currently in the hands of large, modern retailers, with protests by traders and concerns about job losses slowing the expansion of even large local groups such as Reliance Retail, a unit of India's biggest company Reliance Industries.

Competition

Tesco's Clarke said the group planned to open its first cash-and-carry outlet in Mumbai towards the end of next year, with further distribution hubs in Delhi and Bangalore. These will support a network of smaller cash-and-carry stores supplying thousands of small retailers and restaurants.

The group will compete with the cash-and-carry operations of Germany's Metro AG and Shoprite Holdings, as well as Wal-Mart's venture with Bharti. France's Carrefour has also said it plans to enter the wholesale market.

Tesco is currently in 13 countries outside the UK, which account for over half of its total selling space.

But international trading profit, at 701 million pounds in the year ended Feb. 23, is only just over a quarter of the group total, and expansion has not been without its difficulties. The group pulled out of Taiwan in 2005.

Clarke denied Britain's biggest retailer was stretching itself, saying the move into India had been carefully planned, with teams visiting the country over the past three years.