CASH & CARRY. By Kajal Dhawan

Transcription

1 CASH & CARRY By Kajal Dhawan

2 Cash & Carry is to wholesale what a hypermarket is to retail, the difference being in the customer. Cash & Carry (C&C) is an organised wholesale setup where the customer is not the end user, but a business (e.g. a kirana store, a restaurant, a hotel or an institution) that needs to purchase commodities in bulk, with the further objective of selling or servicing its customers, the end-users. WHOLESALE TRADE OVERVIEW India s geography is dotted with millions of kirana stores and vegetable vendors, be it in village interiors, or in the cities and bustling metros, and for years these have serviced the daily needs of the average Indian customer, rich or poor. To feed these stores and vendors, wholesale trade has flourished across all regions. But the trade has been fragmented and monopolistic, with the wholesale trader often holding in essential goods in order to create artificial shortages in the market and then selling goods later at inflated prices. Government regulations have helped evolve better practices but inefficiencies and lack of competition have left this sector largely unorganised. With the advent of the large retail formats in India a new trend started, where the retail chains started purchasing directly from the manufacturer, negotiating better buying terms on volume purchase, especially in the FMCG sector, thus eliminating the intermediary, the wholesaler, from the distribution cycle. CASH & CARRY ENTERS INDIA In 2003, a new, modern, wholesale format the Cash & Carry was introduced into India by the world leader in self-service wholesale the Metro Group, the third largest trading and retailing group in the world. 100% FDI permitted in Cash & Carry (wholesale) The Indian government permits single-brand international retailers to own a majority stake in a joint venture with a local partner, but multi-brand retailers are only permitted to operate through franchisees and licencees, or a Cash & Carry wholesale model. Hence, 100% FDI is permitted in the Cash & Carry (wholesale) format with the stipulation that the goods be sold only to registered business customers holding a valid sales tax/vat number. METRO CASH & CARRY Metro Cash & Carry started operations in India with two distribution centres in Bangalore. Offering over 18,000 articles at the best wholesale prices for hotels, restaurants, caterers, food and non-food Traders, Institutional buyers and professionals, these Centres offered the benefit of quality products at the best wholesale price to over 150,000 businesses in Bangalore. The Metro stores offer a wide array of over 8,000 food items. These include among other things: dairy, frozen & bakery, fresh fish & sea foods, meat, general grocery, canned foods, confectionary, beverages, wines & spirits, detergents, and cleaning materials, health & beauty products, dried fruits, nuts and tobacco. In the non food category, the store offers over 10,000 items that include: office equipment, media/accessories, home electrics, home improvement, household & kitchen articles, home decoration/ seasonal articles, home textiles, ladies wear, menswear, childrenwear, sports goods, toys, luggage, shoes and leather goods. The company also has its own brands spread across several 296 INDIA RETAIL REPORT 2009

3 SPECIAL FOCUS B2B Formats Metro s C&C business model caters solely to business customers. Cash & Carry means that the customers pick the goods themselves, pay in cash and transport their goods with their own vehicles. categories of food and non food items. These are very popular across the globe. In India, the brands that are currently available are: Aro, Quality, Lambertazzi, Sigma, Tarrington House, Alaska, Active, Authentic and Varesa. Metro s C&C business model caters solely to business customers. Cash & Carry means that the customers pick the goods themselves, pay in cash and transport their goods with their own vehicles. The advantages to a trader shopping from a whloesaler such as Metro vis-a-vis conventional wholesale route are many: 1. Price - Large volumes purchased from manufacturer give Metro a price advantage they can pass on to their customer. Also, the modern IT enabled format allows operational efficiencies that reduce costs, giving it business stability and allowing it to offer better prices. 2. Availabilty - Timely availability of stock allows flexibility to the retailer to purchase in quantities he needs instead of stocking up and blocking his funds. 3. Variety and depth of merchandise - 18,000 goods on offer at the C&C offers one-stop shopping for wholesale goods to the retailer who can then save precious business hours instead of going from trader to trader in search of variety of goods. 4. Open all days - Extended business hours of the stores, open 7 days a week, from 6am to 10pm offer tremendous convenience to the retailer. 5. Quality Assurance - Stringent quality systems and modern storage technology including cold storage ensures that the buyer gets the best international standard quality products at all times. 6. Convenience - Huge free parking space is another service that a buyer enjoys. After sales service, weekly offers, efficient billing systems, quality storebrands offered at lowest prices add more value to this format giving wholesale business a completely new dimension in today s retail scenario. With four stores already operational in Bangalore, Hyderabad, Kolkatta and Mumbai, Metro today is poised to extend its concept of Business to Business (B2B) wholesale to other cities in the country. The company is also planning to set up collection centres in rural areas close to the farmers to ensure better access and control over quality in their fresh produce supply chain and to do away with intermediaries. The proposed centres will be around 2,000 sq ft in size, having adequate storage facilities. They will also handle packaging and transportation of fresh produce to the stores. SHOPRITE HOLDINGS LTD Shoprite is one of the leading retailers of South Africa having 1,240 outlets in 16 countries worldwide. It entered India in 2004, setting up a Cash & Carry wholesale operation and franchised its first Shoprite Hyper to Nirmal Lifestyle Group in Mumbai. ATTRACTIVENESS OF THIS SECTOR FOR DOMESTIC & INTERNATIONAL PLAYERS Government regulation & policy - 100% FDI in retail is permitted by the Indian Government only in the Cash & Carry (wholesale) sector, making this format very attractive for an international retailer to make its entry into the Indian retail market. INDIA RETAIL REPORT

4 Huge market size The US$ 332 billion Indian retail pie made up of the kiranas, small retailers and the large retail chains represents a huge business opportunity for the Cash & Carry wholesalers. Untapped market in organised wholesale - German retail major, Metro is the only established player in the Cash & Carry segment in India with foir stores catering to limited regions. A few other retailers have also diversified into this sector, but are yet to establish themselves geographically. Potential in the fresh foods wholesale market The fresh produce wholesale market in India, especially for perishable fresh foods like fruits, vegetables and meat, lacks cold chain facilities; it is estimated that 40% of the total produce, enroute from the farmer to the retailer, gets wasted. Therein lies the opportunity for an organised player with sophisticated supply chain systems to enter as a wholesaler of fresh produce. INTERNATIONAL PLAYERS IN THE CASH & CARRY WHOLESALE BUSINESS IN INDIA Wal-Mart enters India In November 2006, the world s largest retailer, Wal-Mart, made its entry into the Indian retail market via the Cash & Carry (wholesale) route. The company set up a 50: 50 joint venture, Bharti-Wal-Mart Private Limited, with India s leading telecom major, Bharti Enterprises - to start a chain of Cash & Carry (wholesale) stores in India. The C&C venture will run on the same basic concepts as Metro, investing in a sound supply chain, supporting farmers directly, minimizing costs by controlling wastages and maximizing price advantage for its customers. The size of the facilities will vary between 50,000 and 100,000 square feet, depending on the availability of real estate. The merchandise will be both food and non-food, selling a wide rage of fruits, vegetables, groceries, clothing, consumer durables and other general merchandise items. The (B2B) venture will serve kirana stores, fruit and vegetable vendors, restaurants and other businesses. It will also supply to retailers such as Bharti Retail. The joint venture company has already set up a distribution centre spread over 1,00,000 sq ft in Punjab. The company plans to make the stores operational by the end of 2008 or beginning of 2009 by setting up its first store in the northern region and then gradually expanding pan India. High real estate costs, opposition from the unorganised sector, infrastructure bottlenecks and lack of trained manpower are some of the issues that are challenging the company in its fasttrack growth today. The new wholesale outlets, wholly owned by Tesco, will source directly from farmers and manufacturers and supply to small retailers, restaurants, hypermarkets. Tesco comes to India Tesco Plc - the leading UK retailer with sales of over $99.5 billion, recently announced its plans to enter the Indian market with a Cash & Carry business, committing an initial investment of 60 million pounds to be invested over a period of two years. Tesco has 3,729 stores worldwide and employs over 440,000 people across 13 countries. The new wholesale outlets, wholly owned by Tesco, will source directly from farmers and manufacturers and supply to small retailers, restaurants, hypermarkets and other businesses. Tesco has also signed an exclusive franchise agreement with Tata Group Company, Trent. 298 INDIA RETAIL REPORT 2009

5 SPECIAL FOCUS B2B Formats The tie-up will allow Trent access to Tesco s retail and technical expertise in areas like supply chain management, IT, cold chain management, stock management and front-end services to develop its hypermarket business, Star Bazaar. Tesco s Cash & Carry wholesale will also supply quality merchandise to Star Bazaar. Carrefour plans an entry After Metro, Shoprite, Wal-Mart and Tesco it is the turn of the French retail behemoth - Carrefour, the world s second largest retailer, to make its entry into the Indian retail market. Restricted by the India FDI legislation, it too has chosen to enter via the Cash & Carry route. Carrefour, like the other international retailers, has already established a presence in India through its sourcing business. For its retail venture, it has registered two companies in India; Carrefour Wholesale Cash & Carry India Pvt Ltd, and Carrefour India Master Franchise Company Pvt. Ltd. It plans to open its Cash & Carry business in 2009, with stores planned across suburbs of Delhi, Bangalore, Mumbai and Chennai initially. It also plans to enter into a franchise agreement with a local Indian partner to start its retail stores in India around the same time as its Cash & Carry stores come up. With 154 Cash & Carry stores spread worldwide, Carrefour has a definite advantage of global experience to increase its chances of succeeding in the diverse Indian market. There is also a probability that Carrefour will out-source its back-end services to a business partner instead of creating its own logistics supply chain in India. Leveraging on its local sourcing strength, around 90% of the products sold in Carrefour in India will be sourced from India itself giving a boost to the local economy and paving the way for the internationalisation of hundreds of local suppliers that can then hope to make an easy entry into the export market. Also, having understood the Indian consumer preference for low-priced, value-formoney products, it plans to offer, mainly, its private label products, giving it a competitive edge in pricing and a higher profit margin in business. Gloria Jean s entry into Cash & Carry US based coffee chain major Gloria Jean s Coffees, having more than 770 outlets across 30 countries, entered into a master franchisee agreement with The man famous for bringing renowned international brands such as Jimmy Choo, Tommy Hilfiger, Gucci and Calvin Klien to India plans to invest in a Cash & Carry wholesale business now. Citymax Hospitality (India) in December 2007 to set up coffee outlets across India; Citymax is part of the Dubai based retail giant, the Landmark Group. The company plans to set up a wholly-owned Cash & Carry subsidiary in India that will sell coffee beans, merchandise and equipment to its master franchisee, much like the Wal- Mart - Bharti proposed venture in India. Vijay Murjani to invest in Cash & Carry The man, famous for bringing renowned international brands such as Jimmy Choo, Tommy Hilfiger, Gucci and Calvin Klien to India plans to invest in a Cash & Carry wholesale business now. DOMESTIC RETAILERS GO THE CASH & CARRY WAY While international leaders accelerate their entry into the Indian retail market through the Cash & Carry route as a means to understand the Indian market and to prepare a strategy for entry into Indian retail as FDI norms get relaxed, the domestic players have heated up their plans to try out this modern wholesale format as a means of expanding their businesses and taking a bigger pie of the market as retail continues to grow exponentially in the organised sector. INDIA RETAIL REPORT

6 Videocon firms up plans Videocon, the consumer durables major, is venturing into the Cash & Carry (wholesale) business with plans to open 60 Bolld Cash & Carry stores over the next three years. With an investment of Rs.2,000 crore earmarked for the wholesale venture, Sunil Mehta, of Videocon Industries is heading the new division as CEO. Mumbai, Hyderabad, Bangalore, Jaipur and Delhi are the cities where the group plans to set up six stores initially, of sizes ranging from 1 to 1.5 lakh square feet. Offices will be set up in Mumbai and Delhi to run the business. With a merchandise spread based on the same lines as Metro, ranging from groceries, apparel to consumer durables and electronics, including its own company brands, Videocon plans to get a competitive edge over its international and domestic competitors by leveraging the strong supply chain of its consumer durables business to its advantage. Based on a sound pricing strategy of providing the customers value-for-money products, the Company expects the Bolld Cash & Carry business to contribute Rs.10,000 crore to overall sales turnover in the next four years. Wadhawan group considers Cash & Carry Famous for its Spinach brand of retail stores, Wadhawan group too may be considering a foray in this segment. According to speculation, achieving economies of scale by increasing the supply base, thereby reducing logistics costs and increasing bargaining power may well be the reasons for a step in this direction. Reliance Cash & Carry rollout experimentation with different formats and regions continues! Moving with the times, Reliance sees an opportunity in the wholesale market for its own mega front-end retail plans as well as for tapping the smaller retailers of the country. There are plans to set up Reliance Town Centres in small towns with populations of 1 to 4.5 lakhs that will double up as Cash & Carry and entertainment malls - selling everything from furnishings to building materials and healthcare to families doing their weekly shopping or small retailers looking for merchandise for their stores. The company sees a market for such formats beyond the 70 big cities of India and plans are afoot to open 400 such centres across India, starting with Punjab and Haryana. RRL also plans to open 200 wholesale stores by next year that will sell fresh farm produce to small shopkeepers, vendors and hawkers. The company already operates such stores by the name of Ranger Farm Stores in Hyderabad, Punjab and Jaipur that supply to its Reliance Fresh chain. 50 stores are planned in the next three months, with 200 by March These stores will be 2000 sq ft in size and they will source directly from farmers. Indiabulls hooked to expansion Doing well in the western region of Gujarat with its lifestyle and convenience stores, Indiabulls Retail is planning to open its first Cash & Carry outlet in Ahmedabad by the end of 2008, with 4-5 Cash & Carry outlets planned in other cities for the year The company aspires to grow big in this segment, expecting 25% of its total revenues to come from this sector eventually. The group has an advantage over the other large chains in the area of real estate space as the group company, India Bulls Real Estate, is developing thousands of acres of real estate across the country that can be used, to its advantage, for the growth of its retail venture. It is also looking at replicating the successful Sam s Club retail format of Wal-Mart that works on the principles of membership. Tata Group already in it The Tata Group has already made a foray into this sector with its subsidiary Khet-Se Agriproduce, a 50:50 joint venture of Tata Chemicals with Ireland s Total Produce Plc, Europe s largest fresh produce company. Started in 2007, Khet Se Agriproduce is a supply and distribution company for fresh farm produce. Currently, the Company has set up one Distribution Centre (DC) in Punjab with another to open in Mumbai by end of this year, along with two Cash & Carry stores (3,000 4,000 sq ft) running in 300 INDIA RETAIL REPORT 2009

7 SPECIAL FOCUS B2B Formats Ludhiana. The distribution centre has facility for sorting, grading and packing of all fresh produce along with four ripening chambers of 10mt capacity each and four cold storages of 25mt capacity each. Khet Se stores only cater to registered B2B customers such as organised retailers, small retailers and institutional buyers comprising hotels, restaurants and caterers. Future Group in restructuring mode Changing market dynamics have pushed all retailers, big and small, to reconsider their expansion plans and profit models. The Future Group too is said to be working on a plan to split Big Bazaar, the country s largest hypermarket format, which gives the company around 63% of its revenues, into two entities; front-end retail format and the back-end supply chain and logistics support operation. For the latter, the company is said to be scouting around for a suitable joint venture partner, possibly an international Cash & Carry retailer of the likes of Carrefour and CostCo. It is said that the company plans to completely integrate the back-end operations across all its formats such as Big Bazaar, Food Bazaar, Home Solutions and KB s Fair Price shops, hence the need for an experienced business partner that can handle business, projected to be worth Rs.18,000 crore by Investments brought in by the foreign partner could be another major incentive for the Group to consider joint partnership at this point. BOLLD Videocon has entered the Cash & Carry segment with its Bolld Cash & Carry B2B format. The company plans to set up 40 Bolld Stores by The store size planned is 1,00,000 to 1,500,000 sq ft. The stores will deal in all categories, ranging from apparel, food, consumer durables, electronics to general merchandise. The store will stock private label along with branded merchandise, across all categories. Initially five stores will be set up across Ahmedabad, Bangalore, Hyderabad, Jaipur, and Pune at an investment of Rs 400 crores, expected to become operational by March Bolld will leverage on Videocon s existing logistics and distribution setup, that runs its own fleet of transport vehicles across India, to achieve immediate efficiencies in its own supply chain. Expecting to achieve a turnover of US$ 2.5 billion from this business, the company is not planning to rope in any foreign partner in the business like other companies have done. Vishal Retail chalks out a strategy With an ambitious target set for opening of 500 stores across India by 2011, Vishal Retail is all set to expand into different formats of retailing, be it hypermarkets, specialist stores or Cash & Carry. The company is working out its strategy and expects to start operations of its cash & Carry business within this year itself. The tenacity with which this company has grown, especially in the tier II cities, adopting technologies and best practices to its advantage as it grew; it has shown its business maturity and capability to sustain itself in a crowded market place. They just might lead the way in Cash & Carry while others still plan! CONCLUSION Cash & Carry can become a single window of purchase for vendors, in categories such as grocery, food, fresh produce, FMCG etc - especially convenient for local small retailers and vendors who purchase frequently and in small quantity. There are hardly any established organised players as yet in this huge market and with current FDI norms of the Indian government in retail sector encouraging the entry of big unternational players into the Indian market via this route, it has aroused the interest of the domestic retailers and they too are drawing out there plans to capture a share of this market. The next few years will see plenty of activity in this opportunity sector with domestic and international retailers all experimenting with this format. Eventually, the market will consolidate into 3-4 major players taking a major share of the Cash & Carry pie. INDIA RETAIL REPORT