Shoprite calls off India Franchise Agreement with Nirmal Lifestyle

It is learnt that Shoprite which also has a cash and carry operation in India may consider the option of tying up with an existing Indian retailer to scale up operations in the country. Shoprite is also concerned over opening more stores in India given the lack of clarity by the Indian government on opening up foreign investment in retail, a company official said on conditions of anonymity.

The retailer had signed a franchisee deal with the Nirmal group in 2004 and set up its first hyper market in Mumbai. The existing hypermarket in Mumbai is understood to be quite profitable but the retailer has not been able to expand beyond the first store in Mumbai. Suppliers to the store confirmed that Shoprite has announced its decision to call off its hypermarket operations and send a notice that the Shoprite store would cease to exist by January 2010.

“Probably, the JV did not seem viable with the existing partner. However, Shoprite has been extremely efficient in its dealings with suppliers and have ensured timely payments” said a well-known wine supplier on conditions of anonymity. Senior officials from Shoprite global is understood to have held meetings with Nirmal group management late last year but later sent a notice terminating the agreement, an official privy to the JV said.

Ram Harishankar, executive Director of the Shoprite Group in India was not reachable for comments. Dharmesh Jain managing director, Nirmal Lifestyle declined to comment on the development. An email sent to Shoprite’s US headquarters too did not elicit any reply. When contacted, Kishore Biyani, CEO of Future Group declined to divulge details. “We are currently in talks and I do not want to comment on anything further” he said.

The Shoprite company has leased about 75,000 sq. ft area from the Godrej group to establish the distribution centers of Shoprite. Shoprite in India as a hyper market offered a food and household items such as kitchenware, toys, stationery, appliances and clothing. The Indian government has not yet allowed foreign direct investment (FDI) in the retail sector but it allows FDI in the cash & carry wholesale business. Curently, Wal-Mart has a cash and carry JV with the Bharti group while Metro AG of Germany is already operating in Bangalore. Globally, Shoprite today has 705 corporate outlets that include supermarkets, hypermarkets, fresh produce distribution centres, furniture outlets, house and home stores and fast food outlets

A recent Shoprite annual report said, “The Group’s franchised Shoprite Hyper in Mumbai showed turnover growth of close to 20% despite the slowdown in the Indian economy and the further pressure imposed on consumers by bond and interest rate increases. In expectation of the government legalising foreign ownership of retail businesses following its success in the recent national elections, several international retailers have moved into India during the reporting period. Three major new stores have opened in the Shoprite store’s catchment area.Until the government frees up retail in India and the Group is able to open outlets in Mumbai and elsewhere to achieve economies of scale, its business in India cannot achieve break-even results”.

The Shoprite Group of Companies, Africa’s largest food retailer, operates 1079 corporate and 270 franchise outlets in 17 countries across Africa, the Indian Ocean Islands and southern Asia, and reported turnover of R59,319 billion for the year ended 30 June 2009.

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