FMCG - Sector

Carrefour Looking to enter into India

Posted by : WarburgPincus

View full thread (1 messages)

Tracked by: 0 Boarder

The action in the retail industry is hotting up. With the entry of Walmart and Tesco into India, it is only a matter of time before Paris-based retail giant Carrefour announces its tie up with an Indian retail arm. Sources within Reliance Retail told BW that they were in talks with Carrefour for partnering in a cash-and-carry model. Although, when contacted, the spokesperson for Reliance Industries (RIL) denied any talks. Asked if Reliance Retail was considering hiving off parts of its supply chain, he declined to comment, stating “this is an internal issue”.

The concern appears to be that a public discussion would be tantamount to giving away their competitive advantage. Carrefour officials were not available for comments.

RIL also recently announced that it would set up 50 wholesale stores as back-end support for Reliance Fresh, the group’s front-end store. When one combines the food and grocery stores and the dairy processing business, the combined loss of RIL’s retail arms for 2007-08 is around Rs 18.14 crore.

Analysts say that a large group such as Carrefour would look for someone with experience in integrating the supply chain as its local partner. “Indian retailers are still grappling with technology, let alone the ability to build a supply chain that connects the farmer to the consumer,” says Pinaki Mishra, partner and leader, consumer services, Ernst & Young, the global consulting firm.

RIL has invested Rs 25,000 crore in its retail arms, and aims to source directly from farms. But its stores have had issues in offering fresh produce to consumers. Managing the back-end for its 600 stores has also been a hassle. The company has outsourced its inventory operations to UK-based supply chain solutions company, Wincanton. To spruce up its front-end it has tied up with two other UK companies, Marks and Spencer and Hamley Toys.

Carrefour, analysts say, could bring in the technology, but factors such as transportation, process integration, cold chain and agro knowledge are still absent to a large degree. “Most of the sourcing and transportation is done by third-party distributors in India,” says Mishra. “Retailers follow the asset-light model, creating the chain is an expensive proposition.” The supply chain is critical to pricing efficiency. It is a problem that all other retailers face. “All retail stores have struggled to offer choice and cheapest prices,” says Ajay D’Souza, an analyst at Crisil, the rating agency.

Reliance also has plans to launch large hyper store formats — above 120,000 sq. ft — in four major metros, in addition to the ones it has in Gurgaon, Jamnagar and Ahmedabad, branded Mart and Super. The French retailer’s hunt for ‘a suitable boy’ continues....