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December 23, 2022
ET Bureau, Dec 23, 2022
Reliance Retail Ventures, a subsidiary of Reliance Industries and the holding company of the group’s retail businesses, signed definitive agreements to acquire German wholesaler Metro AG’s India business – Metro Cash & Carry India-for a total cash consideration of ₹2,850 crore.
As part of the deal, Reliance will get 31 large format stores in 21 cities as well as the realty portfolio that includes six store-occupied properties, 3,500 staff and Metro’s 3 million B2B customers, of which 1 million are frequent buyers. The deal is subject to regulatory and other conditions and is expected to be completed by March 2023, the companies said on Thursday. ET had first reported in its edition dated Oct 15 that Reliance is the frontrunner to acquire Metro’s India business.
Metro AG said in a release that the India business valuation implies a sales multiple of 0.6x based on sales in the year ended September and takes into account lease rental and other related liabilities of e150 million (₹1,320 crore). Metro India generated sales of ₹7,700 crore (926 million euros), its best ever, in the year ended September.
Metro expects a transaction gain of about 150 million euros and an earnings per share (EPS) gain, once the deal closes.
The move will help Reliance consolidate its presence in the B2B trade segment, which it calls new commerce and is among its next big growth drivers, intensifying competition with Udaan, Amazon and Walmart-owned Flipkart. Reliance owns and runs the country’s largest retail business. All Metro India stores will continue to operate under the Metro brand during an agreed transition period.
Reliance Retail Ventures director Isha Ambani said the acquisition of Metro India aligns with its new commerce strategy of building a unique model of shared prosperity through active collaboration with small merchants and enterprises.
“We believe that Metro India’s healthy assets combined with our deep understanding of the Indian merchant and kirana ecosystem will help offer a differentiated value proposition to small businesses in India,” she said.
Metro AG chief executive officer Steffen Greubel said it is selling a growing and profitable wholesale business at the right time. “Indian trade industry is currently experiencing strong consolidation and disproportionate growth in ecommerce, including the B2B segment,” he said. “Due to the market dynamics, a sizable investment would be required to further grow the business. Therefore, now is the right time to use the momentum and open a new chapter for Metro India.”
Metro said it aims for a leading market position in wholesale. Due to increasing market consolidation, accelerated digitalisation and intense competition, Metro India’s operations don’t fit Metro’s core growth strategy, it said. Abneesh Roy, executive director, institutional equities at Nuvama, said the price to sales ratio is 0.37, which seems fair, given the B2B segment is a low-margin business.
Reliance will gain a significant jump in revenue and established locations that it can expand or optimise under its own branding and formats, said Devangshu Dutta, founder of retail consulting firm Third Eyesight. “The additional shelf space will also be very welcome for its own FMCG brands,” he said.
(Published in The Economic Times)
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December 20, 2022
Metro AG global chief executive officer Steffen Greubel said the company is at a “very advanced” level of discussions on its India business, suggesting for the first time that it could be looking at an exit from the country soon.
“We are very advanced in the process regarding India and are at a certain maturity level in the process. It’s too early to share any information, but we have discussed it greatly,” Greubel told analysts when asked if he is looking at a possible withdrawal from India and the status of talks. “We are very deep in the (sale) process in India,” he said last week while announcing annual earnings.
The German wholesaler grew its Indian business by 21% to $982 million during the year ended September, as per its latest annual report.
Last month, ET reported that Reliance had agreed in principle to buy Metro AG’s cash-and-carry wholesale India business for ₹4,000-4,500 crore.
Its unit Reliance Retail is already the biggest grocery retailer in the country with over 2,400 stores across formats while Metro operates 31 wholesale stores in India with seven of them on company owned land in prime locations. The company hasn’t publicly stated that it’s looking to leave India. Metro would be the second big international wholesaler retailer to exit India, if this happens. French retailer Carrefour wound up its India business in 2014 after struggling with sales for four years.
Globally, Metro is the world’s fourth-largest retailer by revenue. In India, it doesn’t sell directly to consumers and is an organised wholesaler or cash-and-carry operator that sells merchandise to local kirana stores, hotels and catering firms.
It decided to put the India business on the block as part of a global decision to exit the country due to heightened competition, a tougher regulatory environment and the lack of a level playing field between local and foreign retail companies, industry executives said.
Experts said the difficult European and global economic environment, regulatory restrictions in India, tough competition from domestic Indian groups and thin margins in the B2B business in India may have led Metro to focus on growing its core markets in Europe.
“Though India is, indeed, a long-term strategic market for companies looking at global growth, whether retail or B2B, not every business model from other geographies can be successfully transplanted or rapidly scaled in India, and Metro’s business footprint in India may be far smaller than they may have expected in the two decades of presence here,” said Devangshu Dutta, founder of retail consulting firm Third Eyesight. The choice to be present in different countries is always a dynamic one for global retailers and entry or withdrawal is driven by individual strategies, rather than solely on the merit of the market itself, he said.
“In September, the management board reported on the current status of the audit of strategic options for Metro India,” according to the annual report.
Overseas investment in offline trade has been a tricky issue, despite India allowing 100% foreign direct investment (FDI) in wholesale trade on a cash-and-carry basis. Metro was one of the first companies to enter the segment in India in 2003. Lobby groups representing small Indian retailers have accused overseas retailers of violating FDI rules, which the foreign companies have consistently denied. Some trade lobbies have complained to the government that a few global wholesalers have been flouting FDI rules by selling to consumers directly, which is not allowed as per current regulations.
(Published in The Economic Times)
Devangshu Dutta
January 6, 2012
The transition between calendar years offers a pause. We can use it to evaluate what passed in the previous year, chalk out our journey for the next one.
The first response of most people to the question “What happened in the Indian retail sector in 2011” would be probably something like this: lots happened, and then – at the end – nothing did!
That is because one theme ran through the entire year, month after month, fuelled by tremendous interest in the mainstream media as well. This was about the change expected, hoped for, in the policy governing foreign direct investment (FDI) into the retail sector. Hearing the debate go back and forth, on one side it seemed as if FDI was going to cure every ill of the Indian economy, and on the other it seemed as if the country was being sold out to neo-colonists.
It’s worth remembering that not too long ago foreigners could invest in retail businesses in India freely. Benetton ran some of the key locations in the network through its joint-venture which subsequently became a 100 per cent owned subsidiary. Littlewoods (UK) set up a 100 per cent owned operation in India during the 1990s before its home market business collapsed, and its Indian operation was bought by the Tata Group to form Westside. And well before all these, one of the early multi-nationals, Bata, had already built a humongous network of stores across the length, breadth and depth of India.
The motivation for the decision to exclude foreigners from this sector may have been political, economic or mixed – that is not as important as the timing.
By the mid-90s India had just started to attract interest as private consumption was just about picking up steam. Several international apparel, sportswear and quick service brands entered the market during this time. Many of these brands started setting up processes and systems that changed the way the supply chain worked. They gained market share, and more importantly mindshare, with young consumers. In this process some of the domestic brands did suffer, some of them irrecoverably. However, with foreign investment suddenly blocked-off, many brands that wanted direct ownership in the business in India turned away. In their opinion the opportunity just wasn’t big enough to take on the hassle of a partner. Some did enter, but with wholesale distribution structures rather than in retail.
During this last decade, the Indian retail landscape has changed dramatically. During the 2000s the economic boom happened and India became “hot” again. So did retail and real estate, as large corporate houses pumped in significant amounts of capital into setting up modern chains to tap into the fattening consumer wallets. Clearly, FDI was going to come up on the agenda again, but not quite at once. Indian companies needed some headroom to grow; and grow they did, partly with indigenous business models and brands, and partly as partners to international brands.
By 2011, there was more of a clear consensus among the Indian businesses that retail could be opened to FDI and must be. Internationally, too, political and economic heavy-weights from the significant western economies pitched for opening up the retail sector in India to foreign investment. Here’s the small public glimpse of the hectic activity that happened internationally and domestically:
Such an anticlimax! For many, 2011 was the year that could have been a turning point. Could have been! If you had slept through the year and woken up on New Year’s Eve, would you have found nothing had really changed?
Ah, that’s the thing! I think most people observing the retail business actually slept through the year, because they were just focused on the FDI dream. Those actually engaged in the retail business know that many other things did change, some of which create the foundation for further growth.
The government did push on with the GST (goods and services tax) agenda. While stuck in politics at the moment, we look forward to incremental changes in harmonizing the taxes and tariffs regime, vital for truly unifying the country in the economic sense. On the downside, excise being levied on the retail price of clothing was a blow to retailers.
Growth continued. Indian’s retail giant, Future Group, grew to around 15 million square feet. The other giant, Reliance, announced renewed vigour and focus on the retail business with additions to the management team partnerships with international brands such as Kenneth Cole, Quiksilver and Roxy. Other new partnerships were announced, including significant American food service brands Starbucks (with the Tata Group) and Dunkin’ Donuts (with Jubilant). The British footwear brand Clark’s announced that it was aiming to make India its second-largest source country and among its top-5 markets within 5 years. Marks & Spencer pushed to expand its chain by more than 50 per cent, adding 10 stores to 19, while Walmart said its focus was on building scale rather than trying to squeeze profitability from its US$ 40 million investment so far. For fashion brands, the Rs 500 crores (US$ 100 million) sales threshold seemed more achievable as they used the accelerated pace of growth.
Many in the retail business talk about “the people problem”. Fortunately, some decided to demonstrate positive leadership, reflected in RAI’s announcement of an ambitious skill development plan for 5 million people in next 4-5 years, and industry veteran BS Nagesh announcing the launch of a non-profit venture, TRRAIN.
There was some bad news on the issue of shrinkage: a sponsored study placed India at the top of the list of countries suffering from theft. But the level was reported to be lower than the previous study, so there seemed to be hope on the horizon. The study didn’t say whether consumers and employees had become more honest, better security systems were preventing theft, or whether retailers themselves had become better at counting and managing merchandise over time.
A significant highlight was the e-commerce sector, which has found its way to grow within the existing restrictions and regulations, even as the online population is estimated to have grown to 100 million. Flipkart delighted customers with its service and racked up Rs. 50 crores (US$ 10 million) in sales. Deal sites proliferated and media channels celebrated the advertising budgets. Even offline businesses, notable among them pizza-major Domino’s, found their online mojo; Domino’s reported 10 per cent of its total revenues from online bookings within a year of launching the service.
In all of this the biggest story remains untold, which is why I call it an Invisible Revolution. This revolution is made up of the changes that are happening in the supply chain in the entire country, including investment by private companies in massive, large and small facilities to store, move and process products more efficiently. And in spite of the high costs of capital, suppliers are continuing to look at investing in upgrading their production facilities as well as their systems and processes. While the companies at the front-end will no doubt get a lot of the credit for modernizing India’s retail sector, it would be impossible without the support of the foundation that is being built by their suppliers and service providers.
2011 seems to have ended with a whimper. 2012’s beginning will be tainted by large piles of leftover inventory that needs to be cleared. Inflation seems tamer, but consumers have already tightened their belts, anticipating difficult times. The policy flip-flops and the political debates are sustaining the air of uncertainty. So what does 2012 hold?
Remember, the ancient Mayan calendar stops in December 2012, and no doubt there are many predicting doomsday! However, there are several others that see this as a possibility of rejuvenation, renewal.
Hope and fear are both fuel for taking action. Investment cycles are caused by an imbalance of one over the other.
In 2012, we’ll probably continue to see a mix of both. I recommend that we don’t take an overdose of any one of them. Even if you think 2011 was “the year that could have been”, I suggest still treating 2012 as “the year that could be”.
Here’s wishing you a successful New Year!
Devangshu Dutta
October 23, 2009
Trade, of course, has been global for millennia, so it seemed hardly unusual for retailers in the US, and in Europe to begin sourcing from distant countries in Asia where certain items were more readily available or significantly cheaper. Imports have also been encouraged as a political and developmental vehicle to aid friendly countries.
So, on the sourcing-end, large retailers have been comfortably operating beyond international borders for several decades even while the stores-end of their business was entirely domestic.
For most large modern retailers however, after the post-Second World War economic boom their core markets have grown relatively slowly (and rather predictably). While the sheer size of the US market kept American retailers busy domestically, planning and legal restrictions in terms of store size, locations, market share etc. limited manoeuvrability for retailers in Europe.
Among the current major retailers, the early retail explorer, Carrefour set out into neighbouring Spain in 1973 and then into distant Brazil in 1975. Soon after, Dutch retailer Ahold landed in the USA in 1977.
However, it took the opening up of East European economies in the 1990s to really prime the pump for growth of international retail. Suddenly, many more millions of consumers became available to European retailers close to their existing markets – both geographically and culturally – and western European retailers jumped at the opportunity.
At the same time, China seemed to have become steadily more open over the previous decade and in the early-1990s India looked accessible again. Some of the Latin American markets were also steaming up.
And, obviously, the prospect of 3-4 billion new consumers in emerging or developing markets was clearly not going to be ignored. In 2001, post dot-com, another inspiring idea hit the business world that was desperately looking for hope – the golden BRICs – the four countries focussed upon by Goldman Sachs as the biggest economies of the future: Brazil, Russia, India and China.
As incomes grew in these “developing” or “emerging markets”, the hypothesis was that consumer would want products and services similar to those in the more developed markets, creating the opportunity for retailers to cross borders. In the last 15 years or so, retail internationalization (and gradually “globalization”) has become an increasingly acceptable theme – in conceptual thinking, in retail boardrooms, in white papers, and finally in trade and mainstream media. The world has witnessed a network of retail subsidiaries, joint-ventures, franchise and other relationships spreading across continents.
Certainly, through the 1990s and 2000s, growing tele-connectivity, fashion, portable TV programming concepts, movies and print media seemed to give the impression that consumers around the world are becoming more similar, and can be reached by common formats and brands. Led by the FMCG companies on the one hand and fashion brands on the other, insights, concepts, products, formats, advertising campaigns are routinely extended across countries. (Unilever’s TV commercial for Close-Up in West Asia is a great example of this – an Anglo-Dutch company’s international brand of toothpaste, Indian models in Thailand, an Arabic voiceover and a Hindi song (“Paas Aao” – “Come Closer”) by Sona Mohapatra – surely you don’t get more global than that?)
But wait! Is the picture really as clear as that?
In 2006 Wal-Mart pulled the plug on its €2 billion German business that was a combination of German chains that it had acquired. In Russia it still has only a development presence since 2005, though it is reported to be looking at opening 10-15 stores in the following three years. According to Newsweek, Wal-Mart’s 13 year old Chinese business – even after an acquisition that is still to be approved – will have fewer stores than it would have opened in the US just in 2009. In the past it has struggled in Japan and Brazil.
In June 2009, Carrefour opened its first 86,000 sq. ft. hypermarket in Moscow, and a second one soon after that. In September, the company affirmed that the BRIC markets were its highest priority for international growth. However, in October it announced that it was pulling out of Russia. Within 4 months of the first store, Russia has gone from a market with “outstanding long term potential” to being a market to exit. In previous years the company has moved out of Japan, South Korea and Mexico. The Economist reports that significant Carrefour’s shareholders are forcing it to look at selling its Chinese business as well – obviously a move that would be politically very sensitive in China. The same shareholders are also reported to be urging a sale of its Latin American business. For now, the official statement from the company maintains an ongoing interest in all these markets.
Ikea has decided to freeze further investments in Russia, and has decided not to enter India until the Indian government allows 100 per cent foreign ownership of retail operations. It entered China in 1998, and has only 7 stores so far.
Even as Carrefour and Ikea announce plans to pull out of Russia, Russian retailers have pulled out from Ukraine, while Metro is cautious in its outlook about that country. French retailer Auchan has opened three stores in Ukraine since 2007, while the German retailer Rewe has opened all of nine since 2000.
Could the juggernaut of global retail be slowing, stopping or even – shock! – reversing? Are the BRICs and emerging markets falling out of favour?
Before we jump to conclusions, as they say in the television world: please don’t adjust your sets. As the French author Karr wrote: “plus ça change, plus c’est la même chose” (the more things change, the more they are the same).
It is a fact that, no matter how international or global a company becomes, when it gets to the business of retail, it needs to be intensely local. While elements of the business – concepts, products, people, money – can travel across borders, it is extremely difficult to take across an intact retail mix and expect to address a significant portion of the population in the new country. And given how important scale is to mass retailers, lack of localization would be a significant hurdle.
A company sourcing products from a developing country can fully expect his suppliers to adapt to his practices and customs. On the other hand, the same company entering that country as a retailer needs to do exactly that – adapt to the customers – rather than expecting them to fall in line because the “best practice” manual dictates certain processes or because central merchandising found some deals that were great for the home market which are totally irrelevant in the new market.
However, there are encouraging signs that retailers looking to grow internationally understand this more and more. Tesco, for one, has been following a localized approach in Thailand and South Korea, while Carrefour, Ikea, Wal-Mart have all steadily modified their approach in China and other markets. Wal-Mart’s cautious steps in India, including the stores opened by its joint-venture partner Bharti, are a complete contrast to the aggressive “plans” that were being reported in the press 2006-onwards. Recently Wal-Mart’s international chief C. Douglas McMillon was quoted by BusinessWeek as saying “we know you can’t run the world from one place”.
For the larger international retailers this means that, the benefits from international scale would be limited by the amount of localization that they carry out in their operations. For smaller and local competitors that are based in an emerging market this means a fighting chance to remain in business and even remain market leaders.
Lastly, as far as all the dark clouds gathered over international retailing and all the retreats being announced – stay tuned – this weather will change, too.
