Wal-Mart takes the Step
This is news just in off the wire in relation to my ongoing coverage of the Indian retail sector. As such, the world's biggest retailer Wal-Mart has chosen to embark on a retail (in reality wholesale) adventure in India through a joint-venture (FDI is still restricted) with India's Bharti Enterprises. Apparently, the deal comes after negotiations between the UK retail giant Tesco and Bharti Enterprises were terminated last week.
Wal-Mart Stores and Bharti Enterprises announced a joint venture Monday to enter the fast-developing Indian retail market, ending over a year of speculation concerning the two companies’ respective choice of partner for their ambitious plans in the grocery sector.
It comes just days after Tesco said it had finally withdrawn from long-running discussions with Bharti, underway for well over a year, and will deprive the UK supermarket group of one of its most plausible local partners.
The two companies said they had signed a deal to "jointly explore business opportunities" in India. Bharti chairman Sunil Mittal said the two companies intended to open "several hundred" stores across India under the Wal-Mart brand name.
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The Bharti joint venture is a huge opportunity for Wal-Mart to gain a foothold in a market analysts expect will double in value to $637bn (£330bn) by 2015.
"Wal-Mart was keen to get into India. I think they have chosen the right partner," said Mr Mittal.
"It is going to be a large investment, we are going to be a big player in this market." Large overseas retailers such as Tesco and Wal-Mart are currently barred at the retail level in India, but not in the wholesale market.
This is obviously a very important step for Wal-Mart and it will be interesting to see how the US company will do. Ironically, the fact that Bharti Enterprises will be running the actual retail outlets (the stores) can be an advantage for Wal-Mart in the short term. Consequently, many commentators have exactly singled out the mismatch between Wal-Mart's specific company culture and local conditions as the main reason why the company has had very mixed results in its foreign operations based on direct entry through the Wal-Mart retail brand; Germany from where Wal-Mart recently withdrew is a case in point here.
The FT's Lex also does an analysis of this story (walled for non-subscribers) and relates it to the ongoing struggle between retail heavyweights Tesco and Wal-Mart.
In their quest for world domination, retailers have learnt a lesson or two from previous failures. But are they drawing the right conclusions? Take Wal-Mart, which is teaming up with Bharti Enterprises to enter India, beating several rivals, notably Tesco.
The US retailer’s deal with Sunil Mittal, the Indian tycoon, should give it a head start in a potentially huge market. It follows hard on the heels of Wal-Mart’s plans to buy Trust-Mart for about $1bn, more than doubling its size in China. Neither deal will have much immediate financial impact – or prove more than a fleeting distraction from signs of continuing weakness in Wal-Mart’s US operations.
Also over at Morgan Stanley the Indian retail sector is in focus as Chetan Ahya and Mihir Sheth publish the second part of the 'Retail Revolution' in India. The focus this time around is on the agricultural sector.