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FDI in Retail: Carrefour Bows to FDI Policy and Exits India

Posted: Tuesday, 08 July 2014 11:22

FDI in Retail: Carrefour Bows to FDI Policy and Exits India

July 08: In what may be considered as a setback for the new government by some but a victory for the BJP’s Modi camp, Carrefour has announced its exit from Retail in India after being present for four years in the cash-and-carry business on its own while scouting for a partner and awaiting the policy on FDI in Retail

Carrefour is the well-known French super-market retail chain which is the largest in Europe and globally second only to the American chain Wal-Mart. According to a report in Business Standard, Jean Noel Bironneau, the Managing Director of India operations informed the senior executives yesterday afternoon that it was shutting shop in India. He had returned to India recently after being away to France for three weeks, ostensibly to discuss the current political and business scenario and the exit strategy.  A couple of months ago, he had reassured the employees that there were no such plans but this was before the National Democratic Alliance (NDA) led by Narendra Modi had a comprehensive victory in the national elections in mid May this year.   

"Carrefour today announced its intention to close its five cash-and-carry stores in India, where Carrefour has operated since 2010. The closure of Carrefour's business in India will be effective at the end of September 2014. Until that time, the company will continue to be fully engaged with all its employees, suppliers, partners and customers to ensure a smooth transition," according to a statement by the company on its website late yesterday evening.

Though the NDA is opposed to foreign direct investment (FDI) in multi-brand retail, it hasn't reversed the previous United Progressive Alliance (UPA) government's policy decision to allow such entry with some constraints in September 2012, with 51% share in multi-brand retail. However, soon after she took independent charge of the Ministry of Commerce and Industry, the newly appointed Minister of State Nirmala Sitharaman minced no words when she announced that her government was strongly opposed to FDI in retail, especially in the food retail sector- one of the election manifestos of the party campaign.

UK's giant Tesco has sought permission to invest $110 million in running such supermarkets. However no other chain including the world’s biggest retailer Wal-mart has applied. Both Wal-Mart and Carrefour operate cash-and-carry stores. These are wholesale outlets for businesses only with no restrictions on foreign investment.

According to the Business Standard, analysts say many factors have played a part for the company to take the terminal decision. It didn’t succeed to align with an Indian partner for its multi-brand business.  The mandatory sourcing from small and medium sector units was yet another negative that weighed in favour of the exit. The cash-and-carry operations in India have been still bleeding for Carrefour. The 5 stores it operates in East Delhi, Agra, Jaipur, Meerut and Bangalore reported cumulative losses of $17 million (over Rs 100 Crores) in 2012, on a turnover of Rs 190 Crores. It is reported to have invested a total of about Rs 300 Crores in India since its arrival.

India is the only Asian country in which Carrefour operates cash-and-carry stores. "This shows that wholesale is not a part of the group's overall strategy for emerging markets. Rather, it is a vehicle to stay invested in India," an analyst said reportedly.

Another national Daily, Times of India had reported a couple of months ago that Carrefour had started work on an exit plan after talks to sell its stores to the Bharti group failed and the group’s perception that there was no hope of the government allowing foreign chains to set up multi-brand outlets in India. With BJP unrelenting, global giant Wal-Mart has already parted ways with Bharti to focus only on wholesale cash-and-carry business selling to the kirana stores, restaurants and canteens.

The company is negotiating with rivals such as Wal-mart, Metro and Reliance to sell its assets in India. It is an advantage to the buyer to buy the assets like this as it gets the running store and can save 8-10 months of gestation period.

The absence of such chains to sell in retail will be a setback to the growth of wine consumption in India because all of these supermarkets carry wine in their portfolio and are very popular and aggressive in the wine retail segment, thus enjoying a special position as a buyer as well as sellers to the ultimate consumer directly. While it may be good news for the existing retailers in India, the proposed entry for such supermarkets  was expected to add significantly to the wine retail segment.

Tags: Carrefour, Jean Noel Bironneau, Tesco

       

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