Aug 7, 2008

Business - UK's boots tie up with Reliance Retail

World’s leading pharma and beauty retailer, Boots Company, has signed a Bharti-Wal-Mart type agreement with Reliance Retail (RRL) to enter India’s health and wellness market.

The two have decided to get into an equal joint venture for wholesale business and plan to operate front-end stores through a franchisee agreement.

The front-end stores may be launched under the Boots brand. The deal may also see Boots and Reliance launch pharmacies, high-street health & beauty destination stores and healthcare centres.
ET first reported the discussions between the two partners on December 5, 2007. Private equity giant KKR-controlled UK major Boots is now called Alliance Boots, following its merger with Alliance UniChem.
The deal with RRL marks Boots’ return to India after it exited a joint venture with Nicholas Piramal, following the worldwide sale of its OTC medicines business to Reckitt Benckiser in 2005.
RRL has gone for the dual model, joint venture in the back-end and franchisee in the front-end, as it was the only option wherein the foreign partner could have shown commitment through investments, sources added. Globally, Boots sells thousands of beauty and healthcare products under its own label. It also houses a host of brands owned by other companies.

However, in India, Boots could not have invested in the proposed front-end company which will sell directly to consumers, the way Marks & Spencer has done with RRL. The reason is that Boots sells multiple brands and Indian laws don’t allow foreign direct investment (FDI) in direct-to-consumer retail companies that sell more than one brand.
It, however, allows such foreign companies to invest in Indian companies that sell products under a single brand. Marks & Spencer sells products under its own label.
The other option for Boots was to get only into a franchisee agreement with RRL, but it seems the Indian company was not in favour of this model.
Being a new player in the tricky business of retail, it first wants to learn from the foreign partner the expertise and technical know-how of running a successful retail company. Further, Reliance felt that it required the backing of a strong brand and its experience in a specialised vertical like beauty and healthcare, sources added.
A joint venture in the wholesale business, supplying to the retail outlets, was thought to be necessary as Reliance, like most other new entrants in organised retail, faces maximum hurdles in procuring thousands of stock-keeping units (SKUs) for an expanding network of front-end stores.
Boots, UK’s biggest pharmacy chain, operates around 3,100 dispensing outlets world-wide. Its international operations are spread across Norway, Netherlands, Thailand and Switzerland. In the UK, it also runs health and beauty services across high streets and edge-of-the-city centres.
Interestingly, Boots also has a significant eye-care business, apart from manufacturing and marketing health and consumer products under Boots, No 7 and Soltan brands.
Reliance currently operates a few wellness stores offering pharma, beauty and healthcare products across allopathic, ayurvedic and homeopathic streams. The stores also have OTC health foods, self-help medical and fitness equipment in its portfolio. The wellness vertical at Reliance Retail is spearheaded by Ninu Khanna, who also looks after the company’s FMCG business.
Alliance Boots was formed through the merger of Boots Company with Alliance UniChem. However, a private equity consortium, led by KKR, acquired Alliance Boots earlier this year for around $22 billion. It was the first FTSE 100 Index company to be acquired by a private equity fund.

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