Lack of scale keeps big-format retail away from cash & carry


November 18, 2011

Purvita Chatterjee, The Hindu Businessline

Mumbai, November 18, 2011

It is the kirana stores and smaller traders that seem to be patronising Metro Cash & Carry’s wholesale stores rather than the big-format retailers. In spite of providing supply chain efficiencies, it is inadequate scale in the cash-and-carry operations which is making the latter stay away from the cash-and-carry wholesale formats such as Metro Cash & Carry.

According to Mr Rajeev Bakshi, Managing Director, Metro Cash & Carry, “Large, modern trade outlets continue to source directly from the manufacturers as it gives them better margins. We have mainly smaller traders, hotels and the general trade as our members. Outlets of Big Bazaar are not our members as they continue to stock less of fresh produce at their stores.”

The largest retailer in the country, the Future group, which owns the Big Bazaar outlets, is unlikely to register itself as a member of Metro Cash & Carry. “We will continue to have our own supply chain and will directly source from the manufacturers. The eight Metro Cash & Carry outlets cannot meet the demands of our 159 Big Bazaar stores across the country. It simply cannot match our scale as their operations are still small,” says Mr Rajan Malhotra, President – Retail Strategy, the Future Group.

Big, modern trade chains would rather stay away from cash-and-carry outlets. “Cash-and-carry is meant to service small businesses. Big retailers would always like to own their supply chains as it is core to their business. They would ideally like to continue with their independent sourcing and not bring in more distribution layers which would lower their margins,” says Mr Devanshu Dutta, Third Eyesight, a retail consultancy.

Metro Cash & Carry is doing its bit to help the farmers who are its members. The B2B company is also engaging in training programmes and has set up collection centres from them. With nearly 100 farmers as registered members, it claims to give them guaranteed prices and volumes unlike the mandis which have fluctuating rates. As Mr Bakshi said, “In our case farmers get the benefit guaranteed price and quantity which is informed in advance to them, which is not possible in the mandis. We have cashless transactions with farmers and deposit the money directly into their bank accounts which makes their recoveries much faster. They can also get credit from their banks based on such transactions. ”

After going slow in expanding its outlets, Metro Cash & Carry is now stepping up investments with nearly Rs 480 crore assigned to setting up new outlets in cities such as Ludhiana and Delhi. “We have planned to set up 8-10 stores in the next year with an investment of Rs 60 crore for each store. However, the investments are always higher in bigger cities such as Mumbai,” said Mr Bakshi. Recently it launched its second wholesale distribution in Mumbai with an investment of Rs 120 crore.

However, unlike the rest of the cash-and-carry players, Metro is not looking at finding a partner. It has also decided to stay away from the B2C business. In fact, even in markets such as China where FDI has been allowed in retail, Metro continues with its B2B cash-and-carry model. “Considering the volumes are different in the B2B and B2C businesses, we are getting our margins based on the greater volumes and there is a bigger opportunity in the B2B segment,” said Mr Bakshi.