 "Tesco-Trent deal: New format stores will not be bigger than Star Bazaar")
Trent stock jumped another 10.7 percent to closed at Rs 1,181 on Wednesday, after the world’s second-largest retailer by profits, Tesco, announced its intention of taking up a 50 per cent stake in Trent’s subsidiary, Trent Hypermarket. On Tuesday, the stock had rallied 7 percent. Investment by a global and experienced retailer like Tesco will help Trent in its expansion programme and would also be a test casefor foreign direct investments (FDIs) in Indian retailing.
Tesco, which has sought thegovernment’s permission to buy 50 percent stake inTatas-owned Trent Hypermarket Ltd, will have to invest atleast$55 million in creation of fresh back-end infrastructure.The UK-based firm’s has applied to the Department ofIndustrial Policy and Promotion (DIPP) to invest $110million to engage in multi-brand retail trading in partnershipwith Trent Ltd.
The application, however, has raised confusion as towhether such investments could be made in an existing domesticmulti-brand retail firm under the current FDI policy.
Official sources said that as per the current policy, aglobal retailer would have to invest 50 percent of its totalinvestment in fresh back-end infrastructure, while it is freeto invest remaining amount on either new stores or acquiringexisting chain.
“Regarding creation of front end as an additionality, itwas clarified that the entity undertaking multi-brand retailtrading could either create a new store or rent or purchase afront end store as per its requirements,” a source said.
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Industry experts point out that there is an ambiguity onthe policy regarding this matter and it needs clarity.Comments from Tesco on the issue could not be immediatelyobtained.
Even WalMart had cited that the existing FDI norms playeda part in its break-up with Bharti Enterprises in October.
A WalMart India spokesperson had said: “Under therequirements contained in the new FDI policy, Walmart couldnot invest in multi-brand retail through the existing BhartiRetail business.”
The Department of Industrial Policy and Promotion (DIPP)under the Ministry of Commerce and Industry will scrutinisethe Tesco’s application and forward it soon to the ForeignInvestment Promotion Board (FIPB) for its approval.
Tatas-owned Trent Hypermarket Ltd runs 16 outlets in thesouthern and western regions with backend support from Tesco.Tesco plans to sell 14 categories of products, accordingto its application. The items to be sold at its stores includetea, coffee, vegetables, fruits, meat, fish, dairy products,wine, liquor, textiles, footwear, furniture, electronics andjewellery. Thisis the first application for multi-brand retailingsince the government allowed 51 per cent foreign direct
investment in the segment in September last year. It comes twomonths after Wal-Mart Stores and Bharti Enterprises said theywould go their separate ways for retail operations in India.
Tesco proposes to operate stores in India under variousbanners, including Star Bazaar, Star Daily and Star Market,with the tag line reading, ‘A Tata and Tesco Enterprise.’
According to a report in Financial Express, the new format will be a mid-sized hypermarket between the neighbourhood format Star Daily and the hypermarket chain of stores Star Bazaar.
The stores may range between 20,000 square feet and 30,000 square feet and the Star Market will not be bigger than Star Bazaar.
The new stores with Tesco will first be opened in bigger cities of Maharashtra and Karnataka like Mumbai, Pune and Bangalore and then in smaller cities.
With inputs from PTI
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