This story first appeared in DNA Money edition on Friday, Jun 7, 2013.
Foreign multi-brand retailers will not be allowed to take the franchise route for expansion in the country, the government announced on Thursday.
“Front-end stores set up by MBRT (multi-brand retail trading) entity will have to be company-owned and company-operated only,” the Department of Industrial Policy and Promotion said in a clarification issued to global retailers such as Walmart, Tesco and Carrefour.
Further, these retailers will have to set up new front-end stores rather than through acquisition of existing stores, the DIPP said. Nor can they use the e-commerce route to sell their ware.
Industry experts said the government hasn’t done anything more than just reiterating the policy and giving its stand on the same.
“They have upheld the primacy of the state governments, clarified that MBRT and wholesale activity will be kept distinct, investment in back-end infrastructure will have to be additional and greenfield, the back-end company must be held 100% by the foreign MBR, procurement of fresh produce has not been covered etc,” said Vivek Gupta, partner - mergers and acquisitions (M&A) practice, BMR Advisors.
That puts paid to the retailers’ hopes that the government will define back-end infrastructure anew and clarify on sharing of back-end infrastructure such as supply chain, warehouses and cold storages, he said.
Goldie Dhama, associate director – regulatory services, PwC, also rued the lack of any new announcement. While the government has made it clear that 50% investment in back-end infrastructure will need to be made afresh and that such back-end infrastructure can be set up anywhere in the country, “the stipulation that front-end stores will have to be set up new and not through acquisition of existing stores will impact M&A in the sector and ability of Indian retailers to attract FDI in their existing businesses”, he said.
“Some other aspects like restricting sourcing from small and medium enterprises only for retail business, inability of the company to undertake business-to-business trade or appoint franchisees, etc do not seem to be business friendly,” said Dhama.
Some see the stipulation that foreign retailers can only have company-owned and operated stores as an opportunity for the real estate sector.
“That’s one way of looking at it, but do we really have that kind of infrastructure to cater to the requirement of these very large foreign multi-brand retailers? Where will they find a 3-4 lakh square foot of retail space to exclusively house their MBR stores in India?” asked an official from an international consultancy.
Foreign multi-brand retailers will not be allowed to take the franchise route for expansion in the country, the government announced on Thursday.
“Front-end stores set up by MBRT (multi-brand retail trading) entity will have to be company-owned and company-operated only,” the Department of Industrial Policy and Promotion said in a clarification issued to global retailers such as Walmart, Tesco and Carrefour.
Further, these retailers will have to set up new front-end stores rather than through acquisition of existing stores, the DIPP said. Nor can they use the e-commerce route to sell their ware.
Industry experts said the government hasn’t done anything more than just reiterating the policy and giving its stand on the same.
“They have upheld the primacy of the state governments, clarified that MBRT and wholesale activity will be kept distinct, investment in back-end infrastructure will have to be additional and greenfield, the back-end company must be held 100% by the foreign MBR, procurement of fresh produce has not been covered etc,” said Vivek Gupta, partner - mergers and acquisitions (M&A) practice, BMR Advisors.
That puts paid to the retailers’ hopes that the government will define back-end infrastructure anew and clarify on sharing of back-end infrastructure such as supply chain, warehouses and cold storages, he said.
Goldie Dhama, associate director – regulatory services, PwC, also rued the lack of any new announcement. While the government has made it clear that 50% investment in back-end infrastructure will need to be made afresh and that such back-end infrastructure can be set up anywhere in the country, “the stipulation that front-end stores will have to be set up new and not through acquisition of existing stores will impact M&A in the sector and ability of Indian retailers to attract FDI in their existing businesses”, he said.
“Some other aspects like restricting sourcing from small and medium enterprises only for retail business, inability of the company to undertake business-to-business trade or appoint franchisees, etc do not seem to be business friendly,” said Dhama.
Some see the stipulation that foreign retailers can only have company-owned and operated stores as an opportunity for the real estate sector.
“That’s one way of looking at it, but do we really have that kind of infrastructure to cater to the requirement of these very large foreign multi-brand retailers? Where will they find a 3-4 lakh square foot of retail space to exclusively house their MBR stores in India?” asked an official from an international consultancy.
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