In 2003, when German retailer Metro AG entered India, it took a huge amount of teaching the local farmers the modern techniques of plucking and storing fresh produce. Eight years on, Metro itself is still learning the market and trying to find a winning formula in a country holding immense promise for modern retailers.
Industry watchers say Metro squandered its first mover advantage and is currently playing catch-up with US-based Wal-Mart Stores Inc, which is a new entrant and a relatively unknown player on the global wholesale scene.
?Metro?s performance has been terrible as it took them a long, long time to figure out the model,? says the head of a consultancy firm who asked not to be quoted. ?They are still in experimental mode.?
Metro, the world?s largest wholesale retailer, failed to create a winning cash-and-carry formula in India for years and had to change four chief executives in the country. At present, Metro is charting a new course ? pruning the store size by about half and stocking only a third of the articles it carried in its stores earlier.
Rajeev Bakshi, managing director for Metro Cash & Carry India claims the company has now found the ?sweet spot? with the smaller format and the downsized version outlet will be the focus of Metro?s immediate expansion plan in the country.
Industry-watchers, however, say Metro is trying to replicate the success story of Wal-Mart in India which came up with a smaller cash-and-carry model, in the range of 50,000 to 60,000 sq ft with only about 6,000 stock-keeping units or SKUs.
Bakshi denies that Metro is using the Wal-Mart?s model in India and the similarity in the model is just a coincidence. ?We didn?t copy them and they didn?t copy us….it just happened that both of us stumbled on the same formula,? Bakshi says.
While Metro has so far opened seven cash-and-carry stores in the country in the last eight years, rival Wal-Mart has opened nine stores in slightly more than two years. Meanwhile, buoyed by the response, Wal-Mart is planning to add a dozen stores in a year, taking the total number of such outlets to 20, way beyond its original plan to open about 15 stores in the first five years.
Metro has, on an average, opened one store every 18 months, while Wal-Mart opened an outlet every four months. During his visit to India in February, Exkhard Cordes, chief executive of Metro AG had admitted on record that Metro had been ?very slow? in expanding in India. Cordes blamed Metro?s inability to come up with the right retail model in India as one of the reasons for the company?s lacklustre performance in the country.
Cash-and-carry could be a $22-billion opportunity by 2017. Wal-Mart is aiming for the leadership position with a $4-5-billion annual revenue from the wholesale venture.
Wal-Mart officials and people aware of its business say the company is upbeat about the wholesale business and plans to continue with the format even if India allows foreign retailers like Wal-Mart to sell multi-brand products to the country?s burgeoning consumers.
Not just that, Wal-Mart is even contemplating to take the wholesale format to other developing countries in the South East Asia, Middle East and Africa. Stakes are high in the cash-and-carry business as the world’s second-largest retailer Carrefour SA of France has already opened a store in New Delhi and plans several more. Britian’s Tesco Plc is planning to open its wholesale mart later this year or early next year. Also, home-grown Reliance Industries Ltd plans to roll out about 15 cash-and-carry in a year’s time. Now, Metro is planning to strike back. It plans to open as many as 50 wholesale stores in India in the next four years?on an average about 10 stores every year for the next four years. Metro said it has already invested around R700 crore in India and each store at present would cost on an average around R60 crore.
