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IKEA waited six years for an amenable FDI regime; Swedish retailer to trigger price war in India’s fragmented furniture market

IKEA, the Swedish home furnishings giant, is known the worldover as much for its meatballs as for its do-it-yourself (DIY) furniture. But to do business in India, the retailer has had to tweak both, its furniture as well as its food.

Given Indians’ dislike of DIY methods, IKEA has put together an in-house furniture assembly team that will help customers assemble tables, beds and book cases. DIY furniture is IKEA’s signature, something most of its customers are happy to do by themselves elsewhere, but not in India.

Then, pandering to Indian food sensibilities, IKEA will sell meatballs here, for sure, but of a different kind. It will not be offering beef or pork balls but those made from other meats like chicken. Alongside the customised meat balls will be Indian favourites such as biryani, daal makhani and samosas.

As the first IKEA store opens in Hyderabad today, spread over a mammoth 40,000 square feet, the IKEA people can be forgiven for forecasting unexpectedly high footfalls. After all, IKEA has waited for more than six years to open its first store in India, and not without reason.

 IKEA waited six years for an amenable FDI regime; Swedish retailer to trigger price war in India’s fragmented furniture market

Representational image. Ikea India

It has displayed a prudent, watchful attitude peppered with loads of patience in starting to do business here, and this will surely help the company skip future minefields including a haphazard foreign direct investment (FDI) policy and anger amongst local furniture makers against its arrival. The six-year journey to the first store anyway shows how IKEA has been able to navigate the early bumps successfully, by coaxing successive governments into relaxing restrictive policies to suit its own needs.

IKEA finally set the ball rolling on its first India store at the beginning of 2018, despite announcing intentions to invest in India in 2012, when India relaxed sourcing norms under FDI rules in single-brand retail. This relaxation allows foreign retailers to delay meeting the mandatory 30 percent local sourcing norm by five years instead of complying with the norm from day-one. Also, approvals for single brand FDI proposals have now been put on the automatic route (instead of having to get government approval each time).

As per the amended rules, single-brand retailers can now set off incremental sourcing of goods from India for global operations during the initial five years, beginning 1 April of the year of the opening of the first store, against the mandatory sourcing requirement of 30 percent of purchases from India. After five years, the firms will have to meet the sourcing norm every year.

This is a significant boost for IKEA – which remains the single largest single brand FDI proposal to have come to India, waiting in the wings till the sourcing norms were tweaked to its advantage. On its website though, the Indian arm of IKEA proudly talks of its presence in the country for 30 years, sourcing many different products for IKEA stores worldwide. It says “today we source products for approximately €315 million every year, with the aim of doubling it in the next few years to meet our global and Indian needs. We work with 48 suppliers in India, engaging over 45,000 direct co-workers and approximately 400,000 coworkers in our extended supply chain.” IKEA is sourcing about a fifth of its global requirements from India as of now.

The coming of IKEA is sure to shake up the somnolent furniture market in India, where unorganised players rule the roost, with limited organised players selling their wares. IKEA is expected to offer a range of items at very low price points, to attract shoppers.

And this piece suggests that the food inside the IKEA store in Hyderabad would be easy on the pocket too.

“For just Rs 149, hungry shoppers will get to sink their teeth into chicken meatballs, while a plate of biryani will be available for just Rs 99. Apart from its food offerings, IKEA will also serve combos of coffee or tea with cinnamon buns for just Rs 70, while customers with IKEA's family card will get the combo at a discounted rate of just Rs 50.”

With over 7,500 items that will be up for sale in IKEA's store, including around 1,000 items that will be sold for just under Rs 200, IKEA says it wants customers to "have some energy boost halfway through" their shopping sprees. But in the process, IKEA is sure to trigger a price war in India’s fragmented furniture market.

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Updated Date: Aug 09, 2018 13:46:38 IST

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