Its official: Bharti picks Wal-Mart

New Delhi, Nov 27 | Updated: Nov 28 2006, 07:08am hrs
Indias largest GSM telecom operator Bharti Enterprises on Monday finally announced its foray into retail in collaboration with the worlds largest retailer-the $312-billion Wal-Mart Stores, Inc. Bharti chairman and managing director Sunil Mittal said the two companies would be 50:50 partners in back-end operations like logistics, supply chain, technology support and sourcing as well as in the cash-and-carry formats, while Bharti would wholly control front-end stores and their management.

Foreign direct investment is not allowed in front-end retail in India (except for 51% in single-brand retail), although companies can bring in 100%-owned entities for back-end operations. FE was the first to report that Bharti had clinched an agreement with Wal-Mart last week.

Bharti, which was also in discussion with UKs Tesco, picked Wal-Mart after it offered better return on investments.

Mittal said the stores roll-out would begin in August-September next year and the group would be present across all segments, in all categories. Though Mittal refused to disclose investment figures, retail industry sources said the initial investment would be $100 million, ultimately going up to $1.46 billion. Wal-Mart already sources goods worth $1.5 billion from India. This is expected to rise to $10 billion over the next few years.

The Wal-Mart-Bharti combine would not own any real estate. Private equity funds will own real estate, with Wal-Mart and Bharti paying lease rentals for space as anchor tenants.

The biggest competitor for Bharti-Wal-Mart will be Mukesh Ambanis Reliance Retail, which is rolling out 10,000 stores by 2010. Reliance Retail opened its first 11 pilot stores, christened Reliance Fresh, in Hyderabad last month.

However, at an industry seminar, both Ambani and Mittal sought to downplay any major competition, stating that no one company, whether national or an MNC, could fulfill the needs of the Indian market alone.

Ambani said at least six to eight large retail chains, apart from a huge unorganised retail market, would be required given the growing population, favourable demographics and rapidly rising incomes. Coincidentally, in 2003, when Ambani rolled out Reliance Infocomm, his main competitior was Bharti, the largest player in the sector then.