David Prosser's Outlook: Tesco makes its long-awaited move into India
Wednesday 13 August 2008
There was a moment, back in June, when one just began to wonder whether Tesco's seemingly unstoppable forward momentum was finally starting to falter. A row with food writer Hugh Fearnley-Whittingstall over its chicken-rearing standards was unwelcome publicity. Calls from US presidential candidate Barack Obama for better labour practices in America were embarrassing too. And then there was a trading update suggesting Tesco's sales growth had slipped compared with several rival supermarket groups.
Just six weeks later, the juggernaut is back on the road. Not content with announcing a big expansion in financial services last month that will see Tesco take on Britain's biggest banks, yesterday the supermarket giant announced a £60m joint venture in India with Tata.
In the short term, this is not a deal that will add serious sums to its £52bn of global sales. But the significance of Tesco's foray into India – a move it has wanted to make for some time – should not be under-estimated. It now has access to the market to supply products to India's 12 million "kiranas", the small family-run shops that still dominate the country's groceries trade. More importantly, it is in the right place to cash in quickly if – more likely when – the Indian government relaxes rules stopping overseas companies launching consumer-facing supermarket operations.
With presences in the US and China, Tesco's Indian deal makes it a genuinely global player that can ride out slower periods in its home market. The rewards, in time, should be more than enough to compensate for a few local difficulties with the likes of Mr Fearnley-Whittingstall and even a potential US president.
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