With its rapid growth, emerging middle class and democratic government, India has become a leading target market for international food manufacturers and retailers. However, legal restrictions limiting foreign direct investment (FDI) in food retailing have prevented foreign supermarket industry leaders from entering the Indian market on a large scale.

Until the FDI restrictions are relaxed, foreign retail companies are limited to establishing minority stakes in partnerships with Indian companies if they want to enter the Indian market. However, major international retailers are not staying completely on the sidelines in India. Wal-Mart, the world's largest retailer, has established a majority partnership with an Indian company to develop cash-and-carry wholesale stores because grocery wholesaling does not have restrictions on foreign direct investment. After establishing an India-based exploratory team, France's Carrefour, the world's second-largest retailer, just announced that it will postpone its entry into India until uncertainty about the FDI issue is resolved. The United Kingdom's Tesco, the third-largest retailer, has been relocating much of its data processing and product sourcing to India for a few years while studying the dynamics of operating in India. The fourth-largest retailer, Germany's Metro, has been operating its own cash-and-carry business-to-business stores in India since late 2003.

Meanwhile, domestic companies from a variety of sectors have been scrambling to carpet the country with modern grocery stores before the foreign retailers can get a foothold. These companies primarily have been large conglomerates with major industrial operations ranging from oil production and automobile manufacturing to agricultural chemicals and steel fabrication. In almost every case these companies lacked sufficient in-house food retailing experience when they began their forays into the grocery sector. As a result, the explosive growth of food retailing in the past couple of years has been largely driven by an "if you build it, they will come" approach of building stores and then figuring out how to profitably operate them.

This gold rush mentality has led to big gaps between management skills and corporate growth and profitability expectations. Consequently, some of these rapidly expanding supermarket chains have struggled, and a few have had to cut back on expansion plans and, in some cases, close recently opened stores due to such factors as misjudging the market potential, new local government regulations or protests from citizens concerned about the livelihoods of local shopkeepers.

With its limited infrastructure a major stumbling block to food distribution efficiency, the future leaders of India's food industry need to have a holistic view of modern food production, distribution and retailing.

Rod Hawkes is a senior extension associate affiliated with the Food Industry Management program in Cornell's Department of Applied Economics and Management.