Indian wholesale and retail space represents unique opportunities and challenges for any company. Metro Cash & Carry forayed into India with its cash & carry (C&C) model. Although Foreign Direct Investment (FDI) in India in retail space requires a joint venture, the wholesale segment has no such requirement. The case mentions that it was possible for Metro C&C to get approvals for setting up operations in India, however, they were not allowed to source agricultural products. Hence, expansion plans of the company were slow as they were waiting for the AMPC licenses and ignoring agro products (where margins were in the range of 75-80%) was irrefutable. Metro C&C also faced resistance from the local retailers association. Despite several drawbacks, the company was able to achieve sales above the budgeted target although at a slow rate. The aim of this report is to highlight the Metro C&C’s situation in the Indian market, analyze the key issues and provide recommendations to Metro C&C to expand in the Indian market.
Company – Metro C&C is a chain of wholesale stores that is part of the parent company Metro Group, Germany’s largest trade and retail group. With employee strength of over 100,000 employees worldwide, Metro C&C was one of the world’s first C&C players. As per this system, the wholesaler sells a wide array of food and non-food goods for immediate cash and it is the customers’ onus to transport his/her goods. The company touched revenues of €28 billion in 2005, which accounted for 50.4% of the group’s overall sales.
Metro C&C forayed into the Indian wholesale market in 2003 with 2 stores in Bangalore. By November 2006, it opened another store in Hyderabad. The company has its own warehouse, located outside Bangalore for packaging products. Metro Group Buying (MGB), Metro Group’s central purchase entity has two offices in India, one each in Bangalore and Delhi. Volumes sourced from these two offices are growing at 25% per annum with employee strength of around 300 employees each. Employee strength from the Metro India headquarters is around 200 employees.
Customers – Metro C&C sells high-quality products to business customers and institutions. Its customer profile mainly includes SMEs such as hotels, restaurants, bars, cafes, caterers, generalized or specialized food and non-food retailers, government and non-profit institutions et al. Only businesses with a valid business registration can become Metro C&C’s customers. The company’s high buying power and efficient operations allows its customers to buy the products at the most competitive prices. This model is also suited for customers who do not have huge warehouses for inventory, who are less able to predict long-term demand or who prefer purchasing smaller quantities of products on a more frequent basis.
Competition – Metro C&C faces almost zero international competition in India because of its highly fragmented wholesale market. However, with the government allowing up to 51% FDI in retail, many local businesses have formed alliances with foreign players. For example, Bharti has formed an alliance with Wal-Mart and bought an extensive agricultural land in North India. The Birla and Munjal Group also have plans of investing billions of dollars in Indian agriculture and retail. Reliance, India’s petrochemical giant has made significant investments in each stage of the agricultural supply chain. Reliance has planned to set up high-tech, temperature controlled warehouses across India and has ambitious plans to set up around 1000 rural business hubs. In such a scenario, Reliance will get an access to a large untapped market.
Channels – Currently, Metro C&C is selling its products through its own stores in Bangalore and Hyderabad and hence, does not have forward going channels of distribution.
Context – Legally, Metro C&C is barred from...