Google News

Five routes for foreign retail brands to enter India

Must Read

Five routes foreign brands can take to enter India’s attractive yet complex brick-and-mortar retail market

New Delhi: India allows 100% foreign direct investment (FDI) in e-commerce marketplaces. However, such companies are not allowed to stock and sell products on their own and they must lend their platforms to other retailers and vendors to conduct business by charging commissions from them. Inventory-led or hybrid models of e-commerce are not permitted.

However, there are a myriad routes for foreign brick-and-mortar retailers to enter India. Any global retailer planning to enter India must thoroughly study the different routes through which they can invest in a retail business in the country.

India’s retail as a policy is segregated into single-brand, wholesale, multi-brand, food-only FDI and franchisee where generally there is no overseas investment involved.

Here are the routes global retailers can take to enter India:

  1. Single brand
    Single brand retailing has the most liberal policy for doing retail business in India where foreign entities can operate a mixture of fully company-owned offline and online stores, conduct wholesaling business and allow other entities to operate their franchisee stores. India allows 100% overseas ownership for a unified license under the single brand route. The catch here is that such license holders are only allowed to sell products under a single label and their sub-brands. For example, Marks & Spencer can sell products under its M&S brand name, it is also allowed to stock products under its sub-brands of Autograph, Per Una and North Coast among other such labels.However, the single brand policy comes with a small rider: Foreign brands seeking to own more than 51% of any single brand entity have the obligation to source 30% of the total value of products they sell in India from local suppliers from the sixth-year of operation of their store/stores.Companies that have invested in 100% overseas ownership through single-brand: Apple Inc. (that is planning to open its company-owned Apple-branded stores in India later this year), Ikea, Uniqlo, H&M.M&S operates through a joint venture with Reliance Retail and Spain’s Zara has a joint venture partnership with Tata-owned Trent Ltd.
  2. Cash-and-carry/wholesale
    Cash-and-carry is another retailing space where India allows 100% FDI but such ventures are only allowed to sell merchandizes to other retailers, hotels, restaurants, caterers, institutions and other businesses. Wholesale retail operators must form a membership-based venture selling to other businesses and are restricted from selling products directly to the end consumers.Over the decades, Walmart, Paris-based Carrefour and Germany’s Metro AG had invested in their fully-owned subsidiaries in the space. However, foreign retailers like Walmart and Carrefour—with their DNAs of selling directly to consumers—struggled in their wholesale businesses and failed to find a winning model that eventually led to shutting shops in India (Walmart merged its wholesale business with flagship Flipkart business in India). Now, Metro has agreed to sell its business to Reliance Retail and the German retailer specializing in wholesale is exiting the country.  Other global companies operating in the area are UK-based Booker and Thailand’s Lots Wholesale.Five routes for foreign brands to enter India
  3. Multi-brand
    In 2012, the Congress-led government opened the segment by allowing 51% FDI in the so-called multi-brand retailing, paving the way for Walmart, Tesco, Carrefour and other global supermarket operators to form joint ventures in India with local partners.Such ventures are allowed to sell everything from food-to-fashion, provided they fulfil the following conditions:
  1. Overseas investors must pledge to invest $100 million upfront in a single venture and half of the inflow is mandatory to be used to build logistics including back-end infrastructure, warehousing, supply chain and in other logistical areas.
  2. Companies seeking 51% FDI in multi-brand retailing must locally source 30% of the products they sell here.
  3. State governments would have the final say in clearing such ventures.
  4. Multi-brand retailers with 51% FDI can only operate their stores in larger cities with a population of more than one million. Such ventures must operate only through brick-and-mortar stores and are restricted from selling products through online channels.

In 2014, or just two years after announcing the watershed policy, the new BJP-led government came to power and it had not only cold-shouldered the UPA government policy but said it will not allow any foreign company to invest in the segment. Although the BJP government has not officially scrapped the 51% FDI policy, its leaders have maintained their opposition to FDI in supermarkets.

Only UK’s Tesco Plc has invested in a joint venture with Tata in India’s multi-brand retailing and that too came before BJP came to power at the centre in 2014.

  1. Food-only retail
    In 2016, the BJP government said it would allow 100% FDI in a retailing venture that sells only locally-packaged food items. The policy was brought to shore up investment in India’s food and beverage sector. Such food-only license holders are allowed to open brick-and-mortar stores and can sell their products through their own online channels. However, the new retail segment proved to be a non-starter and failed to attract big-ticket investments as foreign retailers said such ventures make little business sense as nowhere in the world do they operate a food-only retail business and they unsuccessfully requested the government to let them sell non-food items as well to make their businesses viable.
  2. Franchisees

A host of foreign brands including Domino’s Pizza, 7-Eleven, Valentino, Victoria’s Secret, Tim Hortons and dozens of global labels operate in India through the franchisee route where the foreign brand owners get royalties and such ventures don’t involve any FDI from the brand owners.

Companies operating in the space: Netherlands-based Spar supermarkets, Charles & Keith, Superdry, Sephora, Estee Lauder, Mango, Toys “R” Us, New Balance and US Polo Assn. among dozens of other global labels are present in India through the franchisee route.

Latest News

Budget 2024: Jewellery sector welcomes custom duty reduction on precious metals

The reduction in duties will bring down input costs, increase value addition, promote export competitiveness and boost domestic manufacturing New...