METRO's turnaround plan

Armed with a more robust model for new stores, Arvind Mediratta hopes to make METRO Cash & Carry profitable soon

When Arvind Mediratta goes to review stores of METRO Cash & Carry, he often walks in with his head looking up at the upper shelves that carry the inventory (cash-and-carry stores stack inventories on top of retail shelves). “Inventory is the new margin,” says the managing director & chief executive officer of METRO Cash & Carry India. 

Mediratta, who joined METRO in February after eight years with rival Wal-Mart, often asks store managers for the lie detector tool, a hand-held device which gives the rate of sales of every article, daily average sale and how much inventory the store has. He says many Indian retailers will be in losses, if they properly account for the inventory they carry.

With the experience of setting up the cash-and-carry business for Wal-Mart in India and working for Wal-Mart's retail business in the US, he is injecting a bit of Wal-Mart into METRO: Aggression, high-performance culture and a renewed focus on basics to turn around METRO in India. 

After treading cautiously, METRO is turning aggressive in India: It plans to open a store every two months, open five stores this year, 50 of them by 2020 and turn profitable. Wal-Mart opened its 20th store in 2012 and, since then, has added just one more store.

Last month, METRO overtook Wal-Mart in number of stores, when its 22nd store opened in Bengaluru. “We are the most aggressive player in the cash-and-carry business. Our stores are doing far more business and have far bigger selling areas (than Wal-Mart). In another six months, we will leave everyone far behind,” says Delhi-born Mediratta.

He says METRO’s expansion model is robust: New stores will come up at lower costs and are more viable. It has demonstrated the same, with new stores in Surat and Bengaluru’s Whitefield, which are doing very well. Enthused by the same, and with improvement in operational metrics (same-store sales growth, profitability and growth across segments), the German parent recently approved METRO’s mid-term plan in India. 

The new stores have lower capex, standard layouts, sell fewer items, the store managers are accountable and there’s lot more discipline around processes, says Mediratta. As a result, the availability has improved and price communication is sharper — all of which are helping them do well.  

Cultural change
 

European companies like METRO are more people-oriented; the flipside is that sometimes, they are too tolerant — even if people don’t perform, it is difficult to remove them. In American companies, it is perform or perish. Similarly, European companies are more cautious, conservative and slower, while American firms are more aggressive, agile, and better at brand building and marketing.

This is the transition METRO is trying to make in India – though today, it is more aggressive than Wal-Mart, which has gone slow since the Foreign Corrupt Practices Act issue cropped up in 2014. When Mediratta joined METRO, it had 19 stores. His mandate is to accelerate growth, create a blueprint for the next five years and culturally change the company. 

He’s trying to drive a high-performance culture, where people have clear goals and are accountable for the same; customer-centricity, where METRO’s aim is to have clean, fast stores, friendly staff and on-shelf availability. In merchandising, instead of buying a big range, be more item-focused. Take televisions, for instance. It may not sell the entire range but a few good models, and ensure it has the best price on them.

“We have to think like item merchants. Every item we stock, must be justified,” says Mediratta. METRO has been making losses since 2003. In FY15, it reported a net loss of Rs 110.7 crore, down from Rs 142 crore loss a year ago. Net sales were Rs 3,974 crore, against Rs 3,440 crore a year ago. But METRO hopes to be profitable soon.
 

Driving profitability
 

“You need a certain scale (20-30 stores) to be profitable and we will get there soon,” says Mediratta. METRO has been focusing on improving its operations by cutting costs, driving efficiencies and discipline — in what it buys, stores and sells. For instance, it has cut the number of assortments from 3,800 to 2,000 items in its new stores.

It has eliminated some layers in stores and offices, consolidated roles, streamlining store operations and standardising layouts — having different layouts can be a nightmare when you scale up; if layouts are the same and you want to change something, it can be done at 100 stores at one go. 

The focus is on driving profitable growth. Like other companies, METRO used to incentivise people for sales; now, it is talking about the quality of sales - asking them to sell profitable items and a larger range. Earlier, its sales team would go and make offers to key customers; now, it is asking them to close the loop, collect the order and the payment. 

Similarly, earlier its stores used to give freebies like free credit and longer credit period. Now, it is asking customers to pay up on time and done away with free delivery but “we will show you the value.” METRO has stopped sales to unprofitable accounts - say 5,000 out of 50,000 - asking them to clear outstanding dues and settle for lower credit period.

It has also empowered store managers and made them accountable. “We don’t shy away from taking a call on poor performers. We have taken some calls to drive the performance culture,” says Mediratta. So, when do the operations get profitable? “We are making significant progress on profitability. We don’t have venture capitalists to fund us. The expectation is that we will turn profitable soon,” adds Mediratta.

FACT FILE

Global parent

Sales: Euro 30 billion (2014-15)

HQ: Dusseldorf, Germany

Presence: 750 stores in 25 countries

Caters to: Hotels, restaurants, who account for 80% of business in countries like France

Indian subsidiary

Sales: Rs 3,974 crore (2014-15)

Net loss: Rs 110 crore (2014-15)

HQ: Bengaluru

Presence: 22 stores

Caters to: Kirana stores, hotels, restaurants, caterers, self-employed, offices

THE TURNAROUND PLAN

• Cultural change: Aggressive, agile, disciplined
• Focus on profitable growth: Get there sooner
• New stores come with lower cost, more viable
• Item-driven merchandising: Fewer assortments
• Performance culture that drives accountability
• Eliminate inefficiencies, streamline operations
• Discipline processes across, focus on execution 

HOW METRO IS DIFFERENT THAN WAL-MART IN INDIA

• Both had 21 stores each, till METRO added its 22nd store last month
• Both wanted to set up 50 stores by 2020; Wal-Mart says 70 by 2020
• Wal-Mart was aggressive but gone slow; added one store since 2012
• METRO claims it is bigger in terms of revenues, stores, assortments 
• Wal-Mart focused on north, central India; METRO on south, west