India's Bharti Group yesterday clinched a deal with US retail giant Wal-Mart to launch the first mega-retail store joint venture in the country, Bharti chairman Sunil Mittal announced.
"They [Wal-Mart] will be a joint venture partner," the telecommunications tycoon who controls Bharti Enterprises, India's leading private phone company, said on the sidelines of the annual India Economic Summit.
"We are going to be a big player in the market," Mittal told reporters. "We are talking here about several hundred [stores] across the country."
European-based Metro AG launched wholesale stores in 2003 in India but retailers have shied away because the government only allows locally-owned franchises or licenses except for single-brand specialty stores such as Reebok.
Mittal said it would take several months to set up the first stores, adding that the deal was in "compliance with existing [government foreign investment] rules."
The tie-up between the world's largest retailer and Bharti is the first direct assault on India's 15 million small shops, the highest density of retail outlets in the world and with annual turnover of US$300 billion which is expected to double by 2015, according to consultants PriceWaterhouseCoopers.
A report by an Indian economic think-tank says that 98 percent of these shops are too small to offer the choice or discounts available to a major retailer that buys globally like Wal-Mart.
Mittal said the new stores would be aimed at giving Indians low prices, especially for the estimated 300 million-strong middle class.
The agreement "allows the two companies to study and evaluate the retail market in India and identify business opportunities together within the existing guidelines," a company statement said.
A key focus for any large retailer in India is to build a supply chain that brings farm produce and other goods to stores efficiently.
The aim will be a major challenge in India where bad roads, erratic power supplies and other bottlenecks remain major problems.
India's Bharti Group has interests spanning from agri-business to telecoms and has eyed the country's massive, but fragmented, farming business as a source of future growth. The sector has also become a focus of a government eager to alleviate widespread poverty in rural India.
Wal-Mart has established a liaison office in India and has been sourcing clothing and textiles worth around US$1.5 billion annually. It seems to have pipped British retail giant Tesco Plc, the world's fifth-largest supermarket chain, which was also in talks with Bharti.
Press reports said the Tesco talks foundered over Bharti's desire for a more aggressive retail rollout than Tesco was seeking.
Indian corporate giant Reliance earlier this month announced its own foray into the retail sector with a supermarket store called Reliance Fresh in Hyderabad.
Reliance chairman Mukhesh Ambani told reporters yesterday he welcomed the competition and that the new entrants "will make our retail sector stronger."
Bharti shares jumped 12.75 rupees or 2.07 percent to 629 in noon trade following the announcement while the benchmark Mumbai stock exchange index was up 73.11 points or 0.53 percent to 13,776.44.