Metro, the German retail giant which operates cash and carry or wholesale retail chains in India, plans to invest R600-700 crore every year until 2016 to open 50 more stores from the present 8, while its global rival and world?s largest retail chain Walmart built 12 stores in two years in small towns as land access is easier.
Metro also looks to make operating profit in 2016 by selling goods to large customers like hotels to small business enterprises, but analysts doubt the time frame as wholesale retail returns are low. ?It yields up to 5-6% for the company, while front-end retail gives you close to 15%,? said Purnendu Kumar, vice-president, retail, at Technopak Advisors.
?It is the right time to expand as the consumer landscape has changed,? said Rajeev Bakshi, managing director of Metro Cash & Carry India. ?There is a need for greater range of products which the kiranas can?t provide.? Metro stocks 14,000 food and non-food products in every warehouse, which also serves as a point of sale.
The metro-focused wholesale retailer plans to open anywhere between 8-10 stores every year. Expansion, however, has challenges. ?Finding good real estate and skilled manpower is a challenge in India,? Bakshi said.
Metro started its India operations in 2003, while its rival Walmart rules the $500-million Indian wholesale market. ?Both, however, have taken different routes,? said Kumar. ?While Walmart tapped small towns with weak wholesale markets, Metro focused on big cities and large customers.?
Hotels, restaurants and cafes constitutes roughly 80% of Metro?s customers. ?Since finding good land is difficult in big cities, Metro?s expansion has been slow but, methodical,? Kumar added.
?The wholesale market in India is very efficient and is difficult to replace by modern formats,? says Bakshi of Metro. The German chain operates in about 0.5 million sq ft with stores in Bangalore, Hyderabad, Mumbai, Kolkata and Chandigarh.
Talks of opening up the Indian retail sector to foreign investment has interested global retail giants like Walmart, Carrefour and Tesco, but Metro has ruled out any such possibilities. ?We have always been a cash and carry player and do not want to be a supermarket for private customers,? Bakshi added.