Woolworths may head to India

Posted by Daniel Palmer on 15th July 2008

Woolworths are rumoured to be considering an entry into the Indian marketplace, according to a report by Fairfax newspapers.

Citi analyst Craig Woolford advised Fairfax that India had always been considered by Woolworths as a possible market for expansion, but the New Zealand market had proven to be more suitable. With increased ACCC focus on the concentrated grocery sector in Australia coupled with the lacklustre demand in New Zealand their focus may, however, shift to India.

Australia’s largest supermarket chain has been achieving significant growth over the past decade but Graeme Samuel, ACCC Chairman, has consistently flagged his concerns about the size of the two largest supermarket chains in Australia, and recently mooted a number of recommended changes to legislation to heighten competition levels.

“How do you remedy it? Well, what you do is you ensure that there are as low as possible barriers to entry on the part of new competitors and existing competitors expanding their business operations,” Mr Samuel said on ABC radio yesterday morning. “I think they’re the things that we’ll be addressing in our grocery report.”

The report into the state of competition in the grocery sector of Australia is due to be completed by the end of the month and the issue of “creeping acquisitions” is also likely to be tackled.

Since the grocery price inquiry finished Woolworths has seen their proposal to buy a supermarket in Queanbeyan blocked by the ACCC and expansion opportunities would now appear limited here in Australia. They opened their first Thomas Dux store, an upmarket grocery chain, earlier this year in an endeavour to capture a small segment of the market which they currently do not target. Even if the Thomas Dux experiment works, though, the impact on the bottom line is expected to be minimal. Consequently, with the drop in New Zealand demand, limited opportunities for growth in Australia, and the purchase of a majority stake in New Zealand based The Warehouse Group appearing unlikely, Mr Woolford believes India could become their next target for growth.

The Indian marketplace is undeniably lucrative due to its prospects for growth and current US$350 billion size. Only four per cent of the market is currently held by retail or chain stores, signifying the potential for expansion. However, a number of major Indian retailers, some in combination with international retailers such as Wal-Mart, have found life difficult when seeking to seeking to open chain grocery stores due to protests calling for protection of small traders.
Last week in the southern state of Kerala about 300,000 shop owners closed for the day to protest against the entry of retail giants. The communist-ruled state has requested to implement a 10 per cent surcharge on retail chain profits to protect small traders, and plan to block retail expansion in the meantime, according to Lanka Business Online.