Carrefour, the world’s second largest retailer based out of France, is planning its Indian foray in 2009 from big cities like New Delhi, Mumbai, Bangalore and Chennai. While it will set up wholly owned wholesale cash-and-carry outlets in the suburbs of these cities, the company is talking with three potential partners for running retail stores on a franchise basis.
The size of the franchise stores and cash-and-carry outlets will range from 32,000 square feet to 86,000 square feet. Barring the cost of the real estate, the fit-ins could cost $5-10 million per outlet. "That would be just our share, not of the partner’s," said Gerard Freiszmuth, general manager-India project, Carrefour.
"The government permits us to own our own cash-and-carry outlets. It is for the front-end operations that we will rope in a partner. All these stores will all be branded as ‘Carrefour’," said Herve Clec’h, managing director, Carrefour Group India.
Current norms do not permit foreign direct investment in multi-brand retail, which means companies like Carrefour cannot open stores in the country. Such retailers have been appointing Indian franchise partners.
Unlike its arch-rival, the world’s largest retail Wal-Mart, Carrefour is not interested in setting up its own logistics system in India and plans to sub-contract this business. "That is not our business. We are retailers," said Freiszmuth. He has been living in India for the last two years conducting market studies and scouting potential partners.
Offering the lowest possible prices is an important strategy for Carrefour’s plans in India. "We will do everything possible to be consistent while offering the lowest prices. So there will be private labels for all kinds of goods, which will allow us to control our margins. We will also look at contract farming for selling good quality fresh produce at excellent price points," added Freiszmuth.
Nearly 90 per cent of the goods that Carrefour would sell would be sourced from India. It already sources goods worth $450 million from India for its global operations. Its sourcing from India, which mainly includes garments and footwear, has been growing at 15 per cent year-on-year.
Carrefour is not keen to sign on any expensive real estate. "We know that after a certain price, it is not viable for our business," said Freiszmuth.
"We will look to work with real estate companies, which will enable us to pay a lower rent," added Clec’h.
It is also not worried about losing the first mover advantage to companies like Reliance Retail, Wal-Mart and Bharti Retail. Freiszmuth explains, "The organised retail market in India today is less than 5 per cent. Many of the players thriving today might die out when organised retail matures to the 80 per cent level."
For its retail initiative, Carrefour currently has a team of 15 in India. While these are mostly expats (and that too French), Carrefour is in the process of hiring many Indian executives. "I just cannot imagine our HR head or marketing head not being Indian...We will have a team of 100 people by the time we are ready to start our operations," said Clec’h.