Wal-Mart steps in as Tesco quits

Economic Times Network,www.economictimes.com
Dated: 26/11/2006

The world’s largest retailer, Wal-Mart is believed to be close to striking a deal with the Sunil Mittal led-Bharti Industries, after UK retail Tesco dropped plans to ally with the New Delhi-based group for its India foray. Tesco called off talks with Bharti putting an end to the much awaited partnership in the retail sector.

According to sources, talks between the two soured in the last minute on several issues but the important ones were royalty and branding. Tesco was not too keen on merely being a back-end partner in India the way Tatas chose to with Woolworth in the durable business.

Bharti is also understood to have been Wal-Mart’s fourth choice as its partner after the global retailer had held several months of intense negotiations with other Indian business houses like the Birlas, M&M and Rahejas, informed sources said.

Wal-Mart is also believed to have committed 'serious money' in the Indian market that would enable the JV to take on the muscle of a strong competitor such as Reliance Retail. Initially, Wal-Mart would provide the back-end supply chain and cutting-edge processes while Bharti would operate the front end.

Also, the royalty and investments in the joint venture offered by Wal-Mart was far higher than that offered by Tesco and it could provide the joint venture the scale and pricing that other retailers would not.

With this, the Bentonville Arkansas-based giant has succumbed to what it always called `the unbelievable potential’ of India’s booming economy and consumerism. Earlier on Saturday, a Reuters copy quoted a Tesco spokesman as having ended negotiations to form a widely-expected joint venture with Bharti, but said the company still planned to enter India’s retail sector.

Wal-Mart scored over Tesco in its swiftness in executing the deal. John Menzer, president and chief executive of the retailer’s international arm was instrumental in sealing the deal, it is learnt. While Tesco was bullish on the India plans, they probably took a little longer in sealing the deal.

Various industry sources ET spoke to attribute several reasons to the turn of events. They said that Tesco didn’t take kindly to the way Wal-Mart joined the fray with a counter offer of sorts. It took also took serious objections to media reports about both Tesco and Wal-Mart were in talks with the Bharti group for a possible partnership.