Cashing out of Asia

Metro Cash & Carry — in the news for a potential sale and a possible exit from India—has not only been the first multinational to set up organised wholesale stores in the country but also the only one to have followed its original business plan.

Dusseldorf-headquartered Metro AG is a leading international wholesale company focused on serving the needs of hotels, restaurants and caterers (popularly known as the HoReCa segment), besides independent traders. So when the German major opened its first store in India in 2003, it didn’t have to tweak its global business model or its plan for the country to suit the local regulatory requirements.

In contrast, other foreign majors such as Bentonville-based Walmart and French retailer Carrefour, headquartered in Boulogne-Billancourt, opted for the cash-and-carry format here despite their ambition of making India a lucrative destination for big-box retail. What Walmart and Carrefour did out of compulsion while waiting for multi-brand foreign direct investment rules to ease in the country, Metro chose naturally.

That big difference made Metro Cash & Carry a non-controversial business in India, keeping it away from the limelight, mostly. Walmart, on the other hand, was (and still is) seen as a powerful foreign force hurting kiranas or the neighbourhood stores, even when it settled for the cash-and-carry model. Walmart’s tryst with Flipkart, which it bought in 2018, in an eye-popping deal, has of course put the American major in another regulatory conundrum related to e-commerce versus offline traders. Carrefour’s India story was short—it wound up the business in 2014—in less than four years of starting out in the country. It had just five stores and the company decided not to wait any longer to find the right fit.

Why then is Metro looking for a buyer and wanting to give up a market that even the parent company Metro AG believes is among the top 10 globally? One can say that there’s a pattern to it and Asia has not really been a big theme for the group. India may be a good destination still but not when it comes to choosing between India and a country in Europe. The German group has been completely focused on its European operations at a time when there have been quite a few setbacks, primarily the long-drawn pandemic and then the Russia-Ukraine war. In addition, some geographies didn’t work out due to local challenges and there’s been a leadership change at the parent company with divergent focus areas.

The Asia news has been bleak in the past couple of years within the group. There have been full exits or a majority stake sale in several geographies in Asia. In 2020, Metro announced it had completed the sale of a majority stake in the China business to Wumei Technology Group for net cash proceeds of more than €1.5 billion. In 2021, the group left Japan, closing all 10 stores and the delivery business. While leaving Japan, it said that there was no opportunity to achieve the necessary scale and reach the profitable targets. In the same year, Metro exited Myanmar too, just two years after starting there. Political reasons may have forced the decision there. The group’s official reason for leaving Myanmar was that the conditions for a growing and profitable food wholesale business were “severely compromised’’.

Founded in Mulheim an der Ruhr (Germany) in 1964, Metro Group’s significant Asia presence is limited only to India with 31 odd stores and no resource to grow further in a competitive environment with several domestic players, including Reliance Retail and Udaan, among others. Of Metro’s businesses in Asia, Pakistan has a joint venture operation with Makro-Habib.

In the meantime, what happened at Walmart as far as India goes? The cash-and-carry business is around, under Flipkart B2B, with some 28 stores, but it’s the Flipkart e-commerce operation that’s getting much of the attention. In fact, Flipkart marketplace and digital transaction platform PhonePe have a resounding presence in the global earnings calls of Walmart these days. In the wholesale/cash-and-carry space at Walmart, Mexico tops with 166 stores as part of the chain’s international business. Next is Africa with 90, China with 36, India 28 and Chile 11. While India’s footprint at Walmart is just these 28 cash-and-carry stores (leaving aside the Flipkart e-commerce business), China has 361 retail (B2C) stores to take its total pie to 397. Mexico’s store count adds up to 2,755.

With multinationals losing interest in the cash-and-carry format in India, it’s over to the domestic champs to make the best of a business that was only the domain of unorganised traders not too long ago.

Going by industry projection, the retail industry, of which wholesale is a large proportion, could touch $1.5 trillion by 2030, from over $800 billion now. That makes India a hot destination still.