Tie-up for wholesale cash-and-carry operations.
In keeping with its strategy of partnering global companies for business forays, Bharti Enterprises today said it had initialled an agreement with Wal-Mart Stores, Inc for a retail venture on a wholesale cash-and-carry basis.
“It is a partnership of equals (50:50). Big investments are in the pipeline,” Bharti Enterprises Chairman Sunil Mittal said on the sidelines of the India Economic Summit here. While Wal-Mart will provide backend logistics support involving sourcing, Bharti will handle the front-end retail aspect by setting up “several hundred” stores across India, the first of which is scheduled to open next year.
There will be an initial investment of over $100 million, a figure that will grow manifold in the future.
Bharti Enterprises will own the retail shops under Wal-Mart’s franchise. The venture would mainly source products from India, though other countries could be involved in case of need, Mittal said.
“We would like to roll out the operations on Aug 15 next year,” he told reporters. The venture will adopt all retail formats, including hyper markets and super markets. “The Bharti brand name is big in India, and no royalty will be paid to Wal-Mart,” he said.
The latest partnership compliments the farm produce joint venture – Field Fresh — that Bharti has with El Rothschild.
Hours after announcing the tie-up, Mittal said there was a need to open up the front end in the $300-billion retail sector to foreign direct investment, something not allowed at the moment.
The government allows 100 per cent FDI in the cash-and-carry business as well as logistics (the backend). It also allows, with prior permission, 51 per cent FDI in single-brand retail.
However, Ajay Dua, secretary, department of industrial policy and promotion, did not favour immediate opening up of the sector. At the same time, he pointed out that there was a need for huge investments – both domestic and foreign – into the rural logistics sector.
“Even China took 20 years to open up the sector to foreign participation. A major concern over FDI in retail are the mom and pop stores, which fully or partly employ 21 million people,” he said.
Mittal said a large part of the retail market, which was growing at 10-12 per cent per annum, would remain in the unorganised sector.
“No one company can do this on its own. I expect at least 8-10 players to emerge in this segment and the government should allow FDI in front-end retail for that to happen,” he said.
Reliance Industries Chairman Mukesh Ambani, whose company recently launched its retail store chain from Hyderabad, also felt that the sector would attract several players.
“No one multinational can really do this. FDI in retail is welcome. There is space for at least 6-8 players,” he said.
Bharti and Wal-Mart had been in talks for sometime. Sources said Bharti was also close to concluding an agreement with British retailer Tesco till as late as two weeks back, but the talks failed.
The company had also talked to Carrefour of France. Interestingly, sources believe that Wal-Mart and Indian real estate major DLF discussed a tie-up in the past. Bharti had tied up DLF for its aborted foray into airport development.