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Tesco to open 6-8 multi-brand stores in India this year

By Chaitanya Muppala | Vjmedia Works | June 17, 2014

Not holding plans for clarity on policy

UK-based Tesco is chalking out expansion plans, even as most global retail majors like Walmart are waiting for a positive signal from the Narendra Modi-led central government before moving ahead with their plans for the Indian multi-brand retail sector. The company, in equal partnership with the Tata group's Trent, is working on opening six to eight new stores in Maharashtra and Karnataka under three of its formats this financial year, informs a source aware of the plans.

Tesco is the only foreign retailer to have made a proposal for multi-brand since the segment was opened to up to 51 per cent foreign direct investment (FDI) in 2012 by the then United Progressive Alliance (UPA) government. The present National Democratic Alliance (NDA) government under Modi is opposed to multi-brand retail FDI but has not reversed the UPA policy. Sources indicate the new government is unlikely to entertain a new multi-brand proposal at least in the near future - that could for now mean advantage Tesco.

The UK retailer's addition of six to eight stores will take the total number of Tesco-Trent outlets in the country to 20. In its proposal, Tesco had clearly said it was going to invest in Maharashtra and Karnataka, both Congress-ruled states. Clearance by states concerned is among tough conditions in the multi-brand retail policy.

In March this year, Tesco and Trent had signed a pact, under which the former bought a 50 per cent stake in Trent Hypermarkets Ltd (THL) and agreed to pump Rs 850 crore in the venture.
 
THL, which currently runs 12 stores across Maharashtra and Karnataka, would open stores of 1,000 sq ft to 30,000 sq ft in Pune, Mumbai and Bangalore under Star Bazaar, Star Market and Star Daily formats, depending on location and size of the properties available, the source said. "Since they have distribution centres in Mumbai and Bangalore, it makes sense to penetrate those cities deeper."

THL would open two or three stores in Bangalore, Pune and Mumbai, the source indicated. The chain will have 1,000 to 5,000-sq-ft stores under the Star Daily express format; 5,000 to 20,000-sq-ft outlets under the Star Market format; and 20,000 to 30,000-sq-ft ones under the flagship Star Bazaar format. A mail sent to THL's public relations agency did not elicit any response.

The company is experimenting with different formats for better profitability. Interestingly, after announcing the joint venture, the company has reduced the size of large stores from 40,000-80,000 sq ft to 20,000-30,000 sq ft to save on costs.

"We are evaluating other formats. We opened a smaller-format store, Star Daily, in Pune. It's a convenience store that is doing very well. We plan to launch a second one shortly," Trent Chairman Noel Tata said in an interview to the group's in-house magazine 'Tata Review'. "We believe these mid-sized formats will reach profitability faster."

Though Star Bazaar had set up its first store in 2004, it is yet to achieve profits. In 2012-13, the chain reported a net loss of Rs 72 crore on net sales of Rs 785 crore. Star Bazaar's 2013-14 numbers are not yet available, while Trent posted a consolidated net loss of Rs 18.73 crore in the year, compared with a loss of Rs 37.94 crore in 2012-13.

The new stores will focus on food and look to offer better customer experience. "For instance, the isles will be wider and have better assortment," the source said.

"We have FDI licence and have no issues with the government policy. We will not open stores if a particular state says no," said a source in the Tesco-Trent JV. "At present, we will focus on opening stores in Karnataka and Maharashtra, which have welcomed FDI in retail."

Technopak Advisors Chairman Arvind Singhal says Tesco could be experimenting with different formats before focusing on what works best for the country. "Once they get the right model, they can go more aggressive."
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