Tesco has finally taken the plunge into the fast-growing Indian retail market, striking a franchise deal with India's leading business group, Tata Group, the owner of Jaguar and Land Rover.
The move gives Tesco a chance to catch up with its US rival Wal-Mart, which two years ago beat it in the battle to partner Bharti in an Indian supermarket venture.
Sir Terry Leahy, Tesco chief executive, said: “This complements our entries into China and the United States, giving us access to another of the most important economies in the world.”
Tesco will make an initial investment of up to £60 million in the venture during the first two years.
The deal is similar to Wal-Mart's. Tesco will roll out a cash-and-carry business across India, starting in Mumbai. The business will then supply products to Tata's supermarket arm Star Bazaar. Tesco executives will work with Star Bazaar under a franchise deal.
Under strict Indian laws, foreign supermarkets are not allowed to set up on their own.
Arvind Singhal, of retail consultant Technopak, said the deal could bring Tesco neck-and-neck with Wal-Mart in the race to supply Indian consumers.
“It's one of the most exciting partnerships in India,” he said. “Of all the combines which have been announced so far, I think the Tata-Tesco partnership will have the maximum chance of success and longevity.”
He said that while Bharti had been a newcomer to retail when it signed the Wal-Mart deal, Tata Trent has been running Star Bazaar for four years.
British retail companies are keen to access the Indian market. Only 3%-5% of the Indian retail industry is in the hands of major corporations, with the rest controlled by small family businesses.
Hamleys today announced a tie-up with Reliance Retail, part of India's most valuable company, Reliance Industries. Marks and Spencer signed a partnership deal with Reliance Retail in June.