The allegation we will wipe out wholesale and distributive trade is far-fetched. Metro basically is a niche player with a unique distribution concept for businesses and even with two distribution centres in a city of more than six million people, it will be able to cater to only a fraction of business needs.

With intentions of taking its stores to Mumbai, Kolkata, NCR and Punjab in the near future, Metro Cash & Carry, which debuted in Bangalore in 2003, is getting ready for competition and also dealing with resistance from local retailers.

Can you explain your business model, especially how you manage your supply chain? How do you maintain your margins and profits in the B2B business?

Metro Cash & Carry’s business model brings together small, medium and large-sized producers, farmers, agricultural cooperatives and manufacturers, with the dispersed community of hotels, restaurants, caterers, traders, retailers and small to medium business enterprises, under one roof. We buy directly from producers and manufacturers and sell to business customers from our no-frills wholesale centres. This way, we shorten the supply chain and thereby eliminate the high costs associated with a fragmented supply chain (estimated as high as 25 per cent in India). We also cut costs and wastage by building modern trade infrastructure and implementing modern IT-based systems which improve efficiency. By aggregating the demand of small and medium businesses, we are able to buy in bulk quantities for the advantage of our customers.

Some of the savings made are passed on to the suppliers, some to our customers and we benefit from the supply chain efficiency that we are able to create.

Why the big uproar from smaller retailers regarding Metro Cash & Carry’s operations in India considering the company is in the B2B space and does not operate like a retailer?

The Indian supply chain for food is fraught with risk and uncertainties where the high costs imposed by an inefficient supply chain have to be borne by the farmers on one hand and consumers on the other. Despite the good results of the Green Revolution, a majority of Indian farmers still live at the subsistence level. This is largely because of the archaic laws which govern agriculture marketing.

Recent governments have also realised that the current laws inhibit the growth of agriculture and hence economic growth in the country, and have proposed to reform the laws. Some vested interests, mainly wholesale traders, who have enjoyed a virtual monopoly on agricultural trade, are keen to maintain status quo. In Bangalore, these traders felt insecure by Metro Cash & Carry’s transparent approach which would encourage farmers to demand more from them and are hence lobbying to prevent Metro from dealing in agricultural products.

In Mumbai, the Federation of Association of Maharashtra (FAM) has aligned its views with the vested interests of the Agriculture Produce Market Committee (APMC) wholesalers in Bangalore. To a large extent, in my opinion, their objections to our business are based on some major misconceptions about the Metro Cash & Carry concept. I would like to take this opportunity to address some of these issues.

Metro Cash & Carry has a global model of business-to-business sales. Our business model will be adversely affected if we were to allow retail sales as the bulk of our target customers are retailers who would buy products from us and sell to consumers. To avoid misuse, we have several checks in place. Our business model allows only registered business customers to purchase at Metro. Entry is restricted to authorised purchasers of business customers with a valid bar-coded photo identity card and this is controlled stringently at the customer entrance. Individual consumers - irrespective of the quantities they wish to purchase - are not even permitted to enter the Metro distribution centre. Metro Cash & Carry has become successful in 28 countries the world over primarily because we have stuck to the business distribution concept under which it was first conceived.

During the enrolment process, an agreement is signed between Metro and the customer organisation clearly specifying the conditions of sale, one of which is that all purchases will be for business purposes. All purchases are invoiced in the name of the customer organisation to ensure that these purchases are exclusively used for business purposes. We are not issuing photo cards indiscriminately to employees of our business customers; the number of cards issued for each customer organisation has been restricted to a minimum. On an average, there are 1.3 cards issued for each business customer location. Some large entities with multiple locations could have 5-6 cards.

There is an attempt to try and confuse wholesale with the idea of quantities. The concept of wholesale has to do with the level of supply chain that is being dealt with, and by whom. In the case of Metro Cash & Carry, Metro is buying goods directly from manufacturers and selling them to businesses and not to consumers. Therefore, fundamentally, what a business buys for its business needs from a distributor like Metro is per se at the wholesale level. The quantity purchased does not define wholesale or retail.

The allegation that we will wipe out wholesale and distributive trade is far-fetched. Metro basically is a niche player with a unique distribution concept for businesses and even with two distribution centres in a city of more than six million people it will be able to cater to only a fraction of business needs. In Germany, where Metro Cash & Carry is a clear market leader in the wholesale business, we have a market share of a mere 2.5 per cent. Our global experience has been that the entry of Metro Cash & Carry improves the efficiency of the distribution chain and instead of undermining the existing trading structures, complements and supports them. The small retailers will particularly benefit from this supply chain model. We can expect similar results in India.

What is the profile of your current members and how many do you have across your three centres? Apart from holding a sales tax registration number, what are the other criteria for becoming a Cash & Carry member in India? Any restrictions involved?

Metro Cash & Carry addresses the business needs of business customers — customers from the entrepreneurial field such as hotels, restaurants, cafes, caterers, work canteens, general or specialised food and non-food retailers.

Because the Metro Cash & Carry concept sometimes is misunderstood, I give you an example for a typical customer: A restaurant owner comes to us to purchase his daily needs for the kitchen such as vegetables, meat, fish, spices and beverages, but also his kitchen equipment like professional pots and pans or his cooking bonnet as well as everything he needs for his office like a copy machine, paper or even the chair for his desk. Metro Cash & Carry sells everything he needs to run his business. And the customer doesn’t have to go to different sources of supply; instead he is able to find everything under one roof saving a lot of time and money

Are you only entering those States where the APMC Act has been amended, with reference to your imminent entry into Maharashtra? If so, why did you decide to set up operations in Karnataka where the Act has not been modified?

The Union Government has already recognised that the way agricultural produce is sold needs to reform immediately in order to boost the Indian agriculture sector. Under the current system, for the last 60 years APMC traders have had a monopoly on agricultural produce, therefore there has been little or no investment in the modern trade infrastructure such as the cold chain. Because the agriculture supply chain is long and fragmented, farmers get only a small fraction of the value at which their goods are sold in end markets and also lack end-market knowledge. This also results in very high wastage levels of fresh produce. Since there is no competition, traders buy produce based on supply.

The Government has realised that in order to improve the valuation of produce for farmers, private investment into trade infrastructure and connect producers to markets is necessary.

The existing archaic laws need to be changed. A model APMC Act has been sent to the States and 19 States have either amended the law or are in the process of amending it. Karnataka, where Metro Cash & Carry started its operations, also announced recently that the law will be amended.

With this change in local policy, we hope that we will soon have the ability to trade in fruits and vegetables in Bangalore and demonstrate the benefits of private investment not only for farmers and the entire agricultural supply chain but also for our customers who will get better quality produce at better prices. We are allowed to sell APMC products in Hyderabad where we have one wholesale centre.

More Stories on : Retailing | Interview | Business Models

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page