Metro Cash & Carry revamps India strategy

Says 10 years in India has shown being a generalist won't pay; find niches you can fill better - and stay ahead of legal hurdles

The Indian subsidiary of Metro AG, the fourth largest retailing chain in Europe is changing its strategy, based on some things it says it has learnt in the 10 years it has been in this country.

Metro Cash & Carry India Pvt Ltd (MCCIPL) has decided to tailor its offerings in India to what it calls ‘multi-specialisation’, a focus on fewer sectors, especially fruits and vegetables. The new model of stores also requires about two-thirds of its earlier investment, at Rs 70-80 crore, for each store.

With revenue of euro 355 million from operations last year, MCCIPL is fine-tuning stores to suit its customer base. Hotels, restaurants and caterers account for a third of these and small traders another 30 per cent. Companies and individual customers account for the rest.

“In India,  we are slowly moving from a generalist wholesaler to a multi-specialist wholesaler. The assortment in our existing stores will become more and more specialist, to cater precisely to what our customer base needs,” a spokesperson of the company said, while announcing the opening of a third store in this city.

The German retailer will now focus on setting up smaller stores of about 50,000 sq ft each, with fewer stock keeping units (SKUs, the retail segment’s terminology for a number identifying a specific stock item), in the range of 8,000-10,000, from its earlier model sized at more than twice the area (125,000 sq ft) and almost 15,000 SKUs. In all, Metro has invested close to Rs 1,500 crore on its stores in the country, with the larger-sized model requiring an investment of about Rs 120 crore each.

Though the company has similar small-sized stores in a few locations such as Chandigarh, Ludhiana and Jalandhar, the third store to be opened in Bangalore is the first of this new multi-specialist model that Metro hopes to propagate to its 15 other stores in the country. The Bangalore store, located at the city’s manufacturing-cum-information technology hub, Electronic City, has been acquired on a lease basis. It is to open for customers in the first half of December. The store is spread over 55,000 sq ft of selling space. The focus here will shift to high-end fruits and vegetables, stationery, cleaning solutions and packaged goods. Products such as textiles, footwear, luggage, open grocery and crockery will make their way out.

Why & how
“The Indian market is very different from the global market and we have decided to indigenise the model. Everybody does not need everything,” said the spokesperson.

In addition to macro infrastructure and logistics constraints, the company says it has found the idea of generalist stocking a difficult thing to do in India, which is not only price-sensitive but has diverse needs. “The five-star hotel buyer’s requirement for HACCP-certified suppliers are immensely different from the requirement of a buyer in a dhaba,” he says.

The company has used its first-mover advantage to sign up with large hotel chains to provide supplies. Metro has the Taj group and The Oberoi as clients and says it is in talks with other big chains as well.  

“We will focus on a few categories and in those, provide the best possible service and assortment. We are also finding our locations as per our customer base,” the spokesperson said. “We do not want people to saunter into a MCCIPL like they would into any hypermart. Most people come here to work -- whether hotel chefs, purchase manager or even a small kirana shop owner. That’s the idea behind sharpening the assortment.”

Metro blames macro issues for curtailed expansion. Despite India being one of the focus countries on Metro’s global priority list, the company has not embarked on any rapid expansion, citing a number of constraints. “Being German and having a company history of being very meticulous, we are very, very cautious when it comes to expansion and work with three-four contingency plans in every step we take," he said.

Metro operates in 29 countries. it has 51 stores in China, 69 in Russia; even a small country such as Bulgaria has 20. However, the company will finish the year with only 16 stores in India. Larger rival Walmart, which recently ended a joint venture with Bharti Enterprises, has 20 cash and carry stores -- Best Price Modern Wholesale -- in the span of six years. Reliance Industries, which also has an emerging presence in this segment, has a handful and is looking at around 15 stores in the near future.

The company has also not tapped India a great deal for the sourcing of its global products. The company says its global sourcing from India accounts for about euro 65 million. Walmart, on the other hand, is estimated to source products worth about $1-1.5 billion from India annually, including textiles, jewellery and household items. In fact, reports project India as one of the fastest growing sourcing markets for Walmart.

Hurdles
Beside regulatory issues, the company says it is battling an acute problem with procurement of real estate. “We see hardly anyone wanting to sell land, especially in North India,” the spokesperson says.

Metro has been plagued by regulatory hurdles in some regions in the course of its 10-year journey in the country. The company has been dragged to the high court here for alleged violation of the Agriculture Produce Market Committee Act, on the sale of notified agricultural products.

A Metro spokesperson says most of the problem in Karnataka has been sorted. Similar problems in other states have either been sorted through exemptions from courts of law on the payment of a cess or some of their stores have been recognised by courts as a designated ‘mandi’, to make the sale in accordance with the APMC Act. The latter provision has been applied to the Bangalore stores, too. The spokesperson says all their stores have been granted an APMC licence, apart from one in the Yeshwantpur area of Bangalore, still under dispute in court.

“Over the last 10 years, a lot has changed. There is a lot more acceptability now, even from farmers,” he said. “The government and people have come to realise that a company like Metro cannot pose a threat of a monopoly with the scale of business we have.”

Highlights: Metro Cash & Carry

Worldwide presence: 29 countries

India Locations:  Total 15; 2 stores each in Bangalore, Hyderabad, Mumbai and 1 store each in New Delhi, Kolkata, Ludhiana, Jalandhar, Zirakpur, Amritsar, Vijayawada, Jaipur, Indore

Opportunity Area:  Cities/Towns with population of over 1 million - 62 locations in India

Store sizes: 9 large formats (approx 125,000 sq ft each); 6 small formats (approx 50,000 sq ft each)

Revenue from India: Euro 355 million; Sourcing goods worth Euro 65 million from India for their global operations

Roadblocks to expansion:

• Real estate procurement for stores
• Regulatory hurdles, license delays
• Lack of well equipped cold-chain management for perishable commodities
• Poor infrastructure for transportation
• Lack of awareness on quality issues among Indian consumers