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Literature Review The rise of Cash and Carry Wholesaling in India

Retail giants from the west are keen on entering the Indian market. This is hardly surprising, given that India accounts for over a sixth of the worlds population accompanied by increasing levels of economic development. Yet, given the Indian governments extensive regulations limiting Foreign Direct Investments (FDI), entering this lucrative market has proven to be an extremely challenging endeavor for foreign retailers. This situation has forced global companies such as Metro and Wal-Mart to get creative. The Cash and Carry wholesale business model is becoming an unconventional means of entering this emerging market. With the Indian government imposing a FDI cap of 51% in single brand retail, Wal-Mart and other retailers are unable to conventionally enter this market. These crippling restrictions do not apply to wholesalers, and therefore global retailers are using Cash and Carry wholesaling as an indirect way to enter Indias high-growth market. The Cash and Carry model is different from traditional wholesaling in that it involves paying at the time of the transaction, and does not include any delivery services. It caters to traders, small local shops, as well as larger businesses. It allows them to shop for a great variety of commodities and intermediate goods, while still paying competitive wholesale prices. The current retail market in India is mainly composed of kirana mom and pop type stores, which occupy close to 98% of the industry. The local kirana owners do not benefit from economies of scale, and have a limited selection of products. Moreover, the many stages of the supply chain also cause a hike in prices, mostly due to the many levels of commission at each chain link. With Indiasupporting such a huge portion of the global population, a wholesaler can help get rid of these high distribution inefficiencies. Cash and Carry wholesalers not only create higher

margins for the kirana shopkeepers, but also indirectly lead to lower prices for the end consumers. This presents a win-win scenario for the economy. India offers lucrative opportunities to these global retailers, with a population of approximately 1,155,347,678 and an ever-rising GDP. The 2006 Global Retail Development Index even named India as the most appealing country worldwide to enter the trade and retail market.

The presence of Cash and Carry operations in India is currently minimal, but it is rapidly growing. Metro was first to enter the Indian market in 2003, and they now operate six cash and carry stores. Wal-Mart entered the market in 2007 by forming a joint venture with Bharti Enterprises to create Best Price Modern Wholesale, and now has five units in operation. Lastly, Booker Group decided to enter without a joint venture in 2009, but plans to expand by franchising.

Best Price Modern Wholesale has adapted their merchandise to meet the day-today needs of restaurant owners, hoteliers, caterers, fruit and vegetable resellers, kiranas, other retail store owners, offices and institutions. They even make a point to source approximately 90% of its merchandise locally. These new Cash and Carry operations stimulate the Indian economy, reduce waste, and make the supply chain more efficient. Roughly 58% of Metros sales and 70% of Wal-Marts sales go directly to small traders, with the remaining going to other Indian businesses such as restaurants, hotels, and offices.

In summary, the influx of Cash and Carry operations has minimized the middlemen in the supply chain, allowing cheaper goods for wholesalers and retailers. With forecasterspredicting that India has the potential to be forty times larger by 2050, there is abundant scope for continued expansion and development.

India: METRO Cash & Carrys B2B business concept suits local economies
METRO Cash & Carry, the sales division of the METRO Group, is present in 30 countries with over 650 self-service wholesale centres employing over a lakh of people. In 2009 the company achieved sales of 30.6 billion. Vishal Sehgal, Head Corporate Relations, METRO Cash & Carry India, in an email interaction with

Nandita Vijay, provides the India success of the business. Excerpts: Are you of the view that METRO Cash & Carry (MC&C) has grown out of its teething problems and the stiff resistance from the local wholesalers? METRO Cash & Carry is an international wholesaler with over 40 years of experience, successfully operating in 30 countries with over 650 wholesale centres. Our core customers include kiranas and small retailers, hotels, restaurants and caterers and offices. The concept of business-to-business has proven to be beneficial to the local economy of the countries where we operate, especially the emerging markets of India, China, Russia, and Vietnam.. Therefore we have been well accepted where we operate. What according to you are the key strengths of METRO Cash & Carry? Our key strength is certainly the wholesale concept. We offer a one stop solution for purchasing highest quality products in large quantities and at wholesale prices. Our extended business hours and assured stock availability enable our customers like kiranas to utilise METRO Cash & Carry as their warehouse and make use of their free capital for their businesses, rather than lock it up in inventory. Our welltried and sophisticated mechanisms ensure that the products comply with the highest quality standards. There are dedicated temperature controlled areas to handle fresh perishables. Moreover, we work closely with local suppliers. Up to 90% of our products are sourced locally, which helps reduce wastage levels and help farmers realize better financial value. We are imparting knowledge to improve product quality. A number of training programmes are conducted for sheep farmers and fishermen in Andhra Pradesh & Karnataka. Several customer connect and knowledge sharing platform like Chef-o-logy, where industry experts like chefs, hoteliers, and food and beverage professionals interact and share knowledge and expertise on a regular basis. We intend to reach out to our core customers by partnering with them and offering them various valueadded services through these customer connect programmes. We create employment for local youth, and impart technical knowledge. The business model has evolved around wholesale concepts, are there any efforts

to redefine this to garner growth from this country? METRO Cash & Carry is essentially a business-to-business wholesaler and our model has proven to be a success in all the countries where we operate including India. Of course it needs local adaptations and this is what we have been doing for the last few years that we have been operating in the country. What about the APMC issue, what is the status of the same? We have received the APMC licence for all our wholesale distribution centres. In Karnataka we operate with a partial APMC licence and we expect to get a full licence soon. Currently with 2 outlets in Bangalore, one each at Hyderabad, Kolkata and Mumbai, are there any future expansions slated? We are ready to increase the pace of our expansion in India. We intend to enter cities which have high business potential. However, each expansion depends on many pre-requisites like land acquisition, licensing etc. until you are able to open a new wholesale distribution centre. Therefore, it is difficult to predict the exact number of new openings. Which are the fastest moving products from your shelves? The products that we sell at our wholesale centre are customized according to the requirement of our local business customers. We provide a one-stop-solution for our customers. For instance, a hotelier can not only procure his requirement of fresh fruits and vegetables, meat, fish and grocery but also the staff uniforms, table wares, crockery, cutlery, office supplies, furniture basically the entire range of products from us. Our products are tailored to the requirement of our core customer groups and are available in various ranges and pack sizes for convenience. Therefore both our food and non-food products have good demand from our customers. MC&C has several value added initiatives including supply chain, build direct supply source, reduce wastage levels and help farmers realize better financial value for the produce. Could you detail the same? India, like many other emerging economies, has a long, fragmented and therefore expensive supply chain. We add value by streamlining the supply sources and

multi-handling of goods, strengthening the supply chain and reducing wastage. We have invested in modern trade infrastructures, like up-to-date slaughterhouse facilities and fish-handling centres. We have established cold chain by introducing refrigerated trucks. Our wholesale centres are equipped with modern temperature controlled areas to handle fresh perishables, thereby reducing wastage. In addition, we train farmers, fishermen, poultry and meat farmers to produce quality products, increase shelf life, decrease wastage, and maintain hygiene and quality. Our initiatives also include the launch of Metros Supplier Relationship Management Portal which makes it easier to suppliers to do business with us and improves transparency while reducing transactional costs for our suppliers. In addition, MC&C has also been engaged in training programmes for sheep farmers and fishermen, vaccination of cattle. Kindly elucidate the current efforts and future initiatives? We have conducted training programs for farmers and fishermen. In Karnataka & Andhra Pradesh in collaboration with the German Investment and Development Association (DEG), we have trained more than 40,000 sheep farmers, vaccinated 10,00,000 sheep, upgraded 5 Government training centres and developed and delivered up-to-date training manuals. We have also trained 1,250 fishing crews in Karnataka and Tamil Nadu and created a fish landing facility in Mangalore, Karnataka. We imparted knowledge on how to improve quality, increase output and upgrade logistics. We will soon be starting training programmes for farmers and traders in various locations. What has been the impact of the global economic slow down for MC&C? METRO Cash & Carry India has closely monitored the development of the global economy and its impact on India and took all necessary actions to further ensure profitable growth of the company. We approached the situation proactively and created opportunities by leveraging our key strength direct line to the customer to help them survive in an uncertain market environment. This way we have been able to establish an even closer relationship with our customers and gain additional market share. What are the challenges in this sector for companies like yours to gain a foothold

in the region? India is characterised by a federal system with various regulations. Land is expensive and difficult to obtain, the infrastructure is not comparable with international standards. Long-term litigations of the highly complex judicial system can also be hurdles in investment. However, we are aware of these challenges and with our experience in other emerging economies like China, Russia and Vietnam, we have the determination and the resilience to overcome these.

India's important piece of puzzle: Metro Cash & Carry


Sarah Jacob, Mar 22, 2010, 12.47am IST

(Ajay Sheodaan, Customer)

The over e33.1 billion Metro Cash & Carry was the first to enter the Indian wholesale business in 2003, since 100% FDI is allowed in this segment. The Indian arm, which meets the product needs of kirana owners and the hotel, restaurant and catering (Horeca) sector, has grown to five outlets across Bangalore, Mumbai, Hyderabad and Kolkata. Metro Cash & Carry India's customer management director, Ajay Sheodaan, told ET that it is focused on developing the market by moving from a transaction-led business to one based on relationships. Excerpts. Where does India fit in the global pecking order of Metro Cash & Carry? The world has come to recognise India as one of the fastest growing economies. For Metro too, India figures among Russia, China, Germany, France and Italy as

one of the few big markets under focus. India has been given higher importance from a strategic and market complexities point of view. This is why Metro has been keen on assigning a certain profile of management suited to deal with the ground level requirements of these markets. India is as important, if not more, than China in Asia. In fact it's a very important piece of the puzzle for any company that wants to get to the next level of growth. Has your India strategy been far removed from the other markets that Metro has a presence in? Unlike other markets, the most significant aspect of the Indian wholesale distribution system is that it is rather evolved and deep rooted. Yet, being fragmented and traditional, it can do with modernisation and greater efficiency that would translate into benefits for all partners within the system. Besides that, our customers enjoy a very strong relationship with their existing supplier base. Despite being assured pricing advantages, they are often reluctant to shift from existing suppliers because they may be old friends or relations. That's a battle that has been tough to win. Being the first mover in the cash & carry space in India, what challenges did you encounter in creating this market? The challenges have been largely in terms of governmental obstacles in terms of licensing, particularly because each state has different regulations. Take for instance in Karnataka, where we still have a restricted APMC (agriculture produce marketing committee) license that includes fruits and vegetables but restricts sale of commodities. The nature of our customers also vary across state borders and within states. Take for instance, the consumption habits of a retailer in Bangalore and Hyderabad against one in the smaller towns of Andhra Pradesh. In AP, there is a large base of customers who seek low-end or local brands as they operate at revenues of Rs 1,500 a day. The solutions designed for them would have to be different from those designed for a customer in a metropolis. What solutions has Metro created for the average Indian kirana owner and are any of them exclusive to the Indian market? A small kirana owner who ekes out a living at Re 1, 500 a day, is often not working-capital enabled and would end up sacrificing 40% of daily sale if he takes out five hours from a 10-hour work day to travel to the Metro store. Taking into account the retailer's time and manpower issues, we piloted a programme with SKS

Micro Finance and a third-party logistics firm that binds together our product assortment with delivery and a loan system. Very often, a traditional wholesaler bundles a premium product even if the kirana owner only wants the mass-priced product. We not only offer financing solutions but also give the retailer the freedom to buy what he wants. India is the first market where this programme has been developed. In fact, even Metro Cash & Carry in Pakistan intends to study and replicate the pilot. Given the entry of several other global players in the cash & carry space, how does Metro differentiate itself? Our research suggests the importance of going beyond price discounting and a transaction-led business to a relationship based one. The Metro Bandhan loyalty programme was designed to reach pre-identified target groups within our overall customer base, on the basis of the quantum and frequency of their purchases, and to incentivise them to increase their share of wallet at Metro through custom-made services. At the same time, our market relevance is based not only on what our customer needs from us but also what our customer's customer expects from him. This is why we have helped Horeca customers with food & beverage training and invited chefs to our shop floor to spread knowledge on various cooking techniques.

Footnote;http://www.buddingmarkets.com/?p=107

by Sameer Mathur and Cara Martow


Posted on May 3, 2011 by Sameer Mathur