Tesco warns against "frenzy" in India retail

22/06/2007 04:58

By Rachel Sanderson

LONDON (Reuters) - Tesco has criticised the "frenzy" being whipped up among foreign retailers about entering India and said it will only launch there subject to a change to laws that prohibit non-Indian ownership.

"People are saying, ’there’s a land grab’, ’there’s a land grab’. There’s never been a land grab," Tesco Finance and Strategy Director Andrew Higginson said at the Reuters Consumer and Retail Summit in London.

"It’s baloney. It is driving a kind of frenzy. And it is illegal for us even to go into India."

Tesco’s joint venture talks with Indian conglomerate Bharti collapsed in December. The deal would have given it an early foothold in a $300-billion (151-billion-pound) retail industry forecast to more than double in size by 2015.

Foreign multiple-brand retailers in India are limited to cash-and-carry and franchise or licence operations and Bharti went on to strike a deal with U.S. Wal-Mart Stores .

Tesco’s comments add to signs some of the early fervour European retailers showed about conquering the fast-growing subcontinent and offset slowing consumption at home is ebbing in the face of legal and operational obstacles.

Carrefour , the world’s second-largest retailer, has cooled its .....continued below

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plans to enter India until regulation is clarified, switching its focus to Russia in the short term.

Kishore Biyani, chief executive of Pantaloon Retail , one of India’s fastest-growing shopping groups, in March told Reuters that estimates that organised retail could grow to a third of the market from 3 percent now were overly ambitious.

It was likely to grow to nearer 15 percent, he believed.

Yet AT Kearney in a report published on Thursday said the window of opportunity was closing for retailers to enter China, Russia and India.

Vice President Hana Ben-Shabat told Reuters that foreign retailers in India faced a particular challenge of understanding the market fast enough to compete with nascent Indian players and snap up prime real estate.

Tesco parted with Bharti because the owner of India’s largest mobile phone group wanted to move faster to compete with homegrown groups Reliance Industries and Aditya Birla. Those two groups together aim to invest more than $4 billion rolling out hundreds of hypermarkets and supermarkets.

Higginson said there were "lots of people" who wanted to work with Tesco in India but it was in no rush because the supply chain still needed to be built from scratch.

"It takes years of patient work. We think this is not just a flash in the plan, we are talking 2 to 5 years. We do expect to be there but subject to changes in the laws."

For Tesco, there was a greater chance of success in the United States where it could possibly open hundreds of stores in Las Vegas, Phoenix, San Diego and Los Angeles in November.

"The property costs are relatively low compared with the wealth of the consumers ... We expect it to give us very good returns in not too long," Higginson said.

(For summit blog: http://summitnotebook.reuters.com/)

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