FDI in Multi-brand Retail in the offing

The global financial mess may have a silver lining for the Foreign Direct Investment in Multi-brand Retail with the government hinting the FDI may soon be allowed though the majority may have to be with the Indian promoters. The global economic turmoil may have achieved what the bureaucrats have not been able to achieve for retail sector in India which has not yet allowed any FDI in multi-brand retail due to strong political opposition, particularly from the Left. who feel  it could ruin livelihood of small traders and people employed with traditional form of retail business.

With fears of more outflow of foreign funds, the government has begun to seriously think in terms of revisiting its policy on FDI in the retail sector, says a report by Indiaretailbiz.com. If allowed, this will encourage inflow of new capital as foreign retail majors are very keen to enter India’s retail sector.

The possibility of wine retail in the regions where it is legally allowed through super markets cannot be ruled out too, thus making availability easier. At the present time, infusion of 100 per cent FDI is allowed only  in ‘cash and carry’ (B2B) retail, with only 51 per cent FD allowed in single brand retail. No FDI is, however, permitted in case of multi-brand retail.

While, companies like Metro AG (Germany) and Shoprite (South Africa) have already taken advantage of 100 per cent FDI in ‘cash and carry’ business and Carrefour (France) and Tesco (UK) have announced their intention to do so, single brand retailers like Marks & Spencer (UK) and Vision Express (Netherlands) have been forced to accept partnerships with local business houses for entry into single brand retail. Given the choice, many of them would have liked to go on their own.

Multi brand retail giants like Wal-Mart, Carrefour, and Tesco, on the other hand, due to current FDI policy, have been compelled to either take franchise route or provide technical (back-end) services. Some have even chosen to wait until the policy is completely changed to meet their requirements.

Although, no major policy decisions are expected as the general elections are due in the next six months, the government is believed to be considering relaxation in FDI norms for both single and multi-brand retail.

Kamal Nath, the union minister of commerce and industries, at a recent trade conference in Paris, had announced that the government is seriously considering permitting up to 100 per cent FDI (as against 51 per cent at present) in single brand retail, specifically in the area of luxury retail. The official line so far has been to consider allowing 100 per cent FDI in single brand retail in the segments that do not adversely affect local employment.

It is also believed that, despite pronouncements to the contrary, the commerce ministry has mooted a proposal that seeks to allow up to 49 per cent (as against Zero per cent at present) FDI in multi-brand retail.

Source:-indianwineacademy

Carrefour-MGF talks end without deal

The French firm’s troubles in finding an Indian partner come as the boom in organized retail sector is fading

New Delhi: The world’s second largest retailer by revenue, Carrefour SA is again struggling to find a partner for its Indian expansion after talks with the latest in a long line of potential allies, New Delhi-based real estate firm MGF Developments Ltd, ended without a deal.

A person with knowledge of the development who didn’t want to be identified confirmed the ending of talks with MGF. As a result, this person added, the French company no longer expects to sign a franchisee partner in India in 2008. He said the firm was talking to several possible partners, but declined to name these.An MGF spokeswoman said the company “continues to explore strategic relationships with leading domestic and global brands”. She added that her company had never “committed to any discussions” with Carrefour and that any “conclusion or reference in this regard is nothing but mere speculation”.

Shopping around: A shopper outside a Carrefour store in Paris. Antoine Antoniol / Bloomberg

In a November interview with Mint, Gerard Freiszmuth, general manager for Carrefour in India, said he hoped to sign a franchise deal with a local firm by March and that it was in talks with “three very willing Indian partners” that he would not identify.

Six months after the deadline, Carrefour is still without a partner. Somesh Dayal, marketing director of Carrefour in India, declined comment on whether his firm had ever been talking to MGF for a potential partnership, and said while it is still looking for a partner, the primary focus is on the wholesale venture.

He added that there were six companies with whom Carrefour was talking to for a potential partnership, but discussions were still in an initial stage.

Last year, Carrefour had floated two separate units in India, Carrefour WC and C India Pvt. Ltd to roll out fully-owned wholesale stores, and Carrefour India Master Franchise Co. Pvt. Ltd, which was to partner with an Indian company to open the French firm’s branded stores in the country.

Although India allows foreign retailers to sell directly to other retailers or institutions, it bars them from selling to individuals. Single-brand retailers, however, are allowed to own up to 51% in Indian arms that can sell to anyone. The franchise route, where a foreign retailer appoints an Indian firm as a franchisee, is one way companies such as Carrefour can operate in India.

Over the years, Carrefour has been in preliminary conversations with Bharti Enterprises Ltd, real estate companies DLF Ltd and Parsvnath Developers Ltd and Mumbai-based business house Wadia Group among other local firms, for a possible alliance.

Carrefour’s troubles in finding a partner come even as a boom in the nascent organized retail sector in India is tapering off, with firms that entered the business struggling to succeed in a complex market.

So far, Reliance Retail Ltd has around 700 stores, though well short of its September 2007 target of 2,000 stores. Basmati exporter Rei Agro Ltd entered retail with some 200 grocery stores called 6Ten but has shuttered dozens of these in recent months.

Indiabulls Retail Services Ltd, part of the group that also has a presence in financial services and real estate, has shut four of its nine Indiabulls Megastores. Mumbai-based HyperCity Retail closed its pilot small stores and abandoned plans to open about 250 grocery outlets by 2012.

Analysts and experts, however, say India’s modern retail business will grow over time.

A recent report by consulting firm McKinsey amd Co. said the number of potential shoppers at branded stores in India will jump fivefold in the next eight years from 13 million households currently to 65 million households or 300 million consumers.

That could explain why the world’s top retailers including Wal-Mart Stores Inc., Tesco Plc., Metro AG and Carrefour are betting on India. Wal-Mart has forged an alliance with Bharti Enterprises for a wholesale retailing venture while Tesco plans to set up a wholly owned cash-and-carry unit similar to Germany’s Metro.

It is unclear whether Carrefour’s inability to enlist a local partner will in any way affect the company’s plans to open its fully owned cash-and-carry stores by mid-2009.

In Wal-Mart’s case, the joint venture it has with Bharti will feed into retail stores wholly owned by the latter. And Tesco has a similar arrangement with the Tata group’s Trent Ltd.