The other week, I mentioned that the Indian government had passed legislation allowing foreign supermarkets chains into India. Well......that's now been put on the back burner. Here's an article from "The Wall Street Journal" discussing this:
• DECEMBER 12, 2011
Foreign Retailers Regroup in India
By MEGHA BAHREE and MIGUEL BUSTILLO
The potential of the booming Indian market is captivating to the world's biggest store chains, which long to make it a linchpin of their growth strategies. Now, with the Indian government backtracking from retail liberalization, retailers like Wal-Mart Stores Inc. and Tesco PLC are retooling their plans.
The political backlash against foreign retailers was a major setback for Wal-Mart, which for years lobbied Indian officials to change the rules, arguing that allowing international retailers to run their own stores in the country would not only improve shopping options for the public, but modernize the entire economy.
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The Indian government backtracked on a plan to open the country to foreign mass merchants amid a public outcry, led by small shopkeepers.
The world's largest retailer also has been vocal about India's potential impact on its bottom line. Executives of U.S.-based Wal-Mart said during a March investors' conference on its international business that the company expected to turn a profit more quickly in India than in China, where the process took a dozen years.
The enormity of the Indian retail market has dazzled major corporations: Consulting firm A.T. Kearney, which has been polling companies about global-expansion aspirations for more than a dozen years, said India now ranks only below China on their priority lists, ahead of markets like Brazil and the U.S.
But public opposition to the move in India remains rife. Radha Krishna Store in Bengali Market in central Delhi is typical of the mom-and-pop stores the Indian government wants to protect from big-box retailers like Wal-Mart. The small store's shelves are stacked with items as diverse as shampoos, cooking oils, diapers and milk. Kamlesh Gupta and her husband have been operating the store for 25 years.
If chains like Wal-Mart and Tesco are permitted to operate in India, "everything will be over," Mrs. Gupta said. "If they sell goods cheaper than us, who will come here? Already, we have lost 20% of our business since Big Bazaar and Reliance started operating in the last two years," she said, referring to two Indian retailers.
To protect stores like these, Uma Bharti, a leader of the main opposition party, the right-of-center Bharatiya Janata Party, had threatened that she would personally set fire to any Wal-Mart stores if they were allowed to enter India. She said she was prepared to go to prison for it. This party's voting constituency includes small retailers.
The political opposition to loosening the foreign-investment rules ensures that, for now, Wal-Mart's only way to grab a piece of the lucrative market is through a partnership with Bharti Enterprises Ltd. to operate wholesale-style "cash and carry" shops selling bulk items to small-business owners. The joint venture only had nine stores as of the end of October, a minuscule presence for a retail giant with more than 9,000 shops in 28 countries.
Carrefour SA, the world's second-largest retailer behind Wal-Mart, has long pegged India as a strategic market. For years, the French company has been seeking a local partner with whom to launch a chain of supercenters. A person close to Carrefour said the company is unswayed in its quest, regardless of whether the retail law goes into effect or not, though this person added that having a majority stake would be important "symbolically."
Impatient to get its business started in India, Carrefour has opened two wholesale cash-and-carry stores in the meantime. The first opened in Delhi a year ago, and the second opened in Jaipur in November. The opening of the second store coincided with the passing of the retail law, and protesters demonstrated outside the store against the new law. Carrefour intends to open more wholesale stores next year but hasn't detailed its plans.
The Indian government's decision to put the proposal for multibrand retailers on ice came also as a blow to Tesco, which along with other British businesses has advocated changing the regulations. Tesco has been unable to open stand-alone retail stores in India and instead operates through a franchise deal with Tata Group unit Trent. "The decision to defer [foreign direct investment] is a missed opportunity for Indian producers, farmers and consumers," Tesco said.
Saloni Nangia, senior vice president and head of retail and consumer goods at Technopak, a consulting firm based in New Delhi, is hopeful that the decision to allow foreign retailers to open supermarkets in India might still happen.
"A number of brands were already in the country and will continue to believe and be a part of the India opportunity," Ms. Nangia said. "While the discussion has been put on hold, it will come back in due course of time and the government will come up with a plan."
The door remains open to "single brand" retailers in India, like Ikea Group of Sweden, Nike Inc. of the U.S. and Marks and Spencer Group PLC of the U.K. Until now, single-brand foreign retailers like Nike could only hold 51% of an Indian joint venture. Now, the government is allowing 100% foreign investment in single-brand retail, which is attractive to companies like Ikea that have publicly said that they weren't interested in partnerships.
Brands like Levi Strauss & Co., Nike and Reebok International Ltd. have been in India for several years. Their products have been popular among a brand-conscious generation and were being sold in India initially through department stores and more recently through their stand-alone stores operated via joint ventures or franchisees. Marks & Spencer entered the market in 2001, initially as a franchise business. In 2008, the company, which has 23 stores in India, signed a joint-venture agreement with the Indian company Reliance Retail Ltd., a unit of Reliance Industries Ltd., which has allowed Marks & Spencer to open larger stores and tap into local sourcing.
More recently, brands like Tommy Hilfiger, Zara, Mango and French Connection have set up stores in the bigger cities, offering more choice and providing more competition to increasingly discerning consumers.
These brands, under the new policy, will now have the opportunity to buy out their partners or franchisees with the condition that they source at least 30% of their future products from Indian small and midsize enterprises.
But this requirement poses a problem for companies in the luxury-goods sector, many of which make their products in Europe and export them to markets like India.
An example is Burberry Group PLC, the British trench-coat maker. The company has seven stores in India, all of which are operated as a joint venture with the Indian company Genesis Colors Pvt. Ltd. Burberry, which opened its first store in India in 2008, owns 51% of the venture.
Burberry faces high import duties in India because many of its products fall under a so-called luxurytax on high-end goods. The company would face difficulty satisfying the sourcing requirements if it decided to take full ownership of its Indian operation. Burberry's traditional raincoats are made in England, and most of its leather products come from Italy.
—Paul Sonne and Christina Passariello contributed to this article.
Write to Miguel Bustillo at email@example.com
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