We will get into smaller towns slowly: Metro AG COO Pieter Boone

The GST was disruptive, but has brought greater stability and transparency to business, said Pieter Boone

German retail major METRO Cash & Carry, a subsidiary of the 58-billion euros Metro AG, intends to consolidate its gains in India. The plan includes doubling store count to 50 from 24 in three years. The chain has set aside an investment of Rs 1,690 crore for this. Pieter Boone, chief operating officer, Metro AG, in an exclusive interaction with Arnab Dutta, indicates the challenges and opportunities for organised wholesalers in India. Edited excerpts:

You are coming to India at a time when the potential for organised wholesale is growing. This comes as unorganised wholesale reels under compliance issues pertaining to the goods and services tax (GST).

The GST initially was disruptive for all stakeholders. But as it has progressed since implementation in July, the tax regime has actually brought greater stability and transparency to business. We have a big advantage now (as traditional wholesale suffers due to non-compliance issues), thanks to the GST. But the full gains can be captured as we expand operations in India. The majority of our presence today is in metro cities, but we are bullish about tier II and III towns as well. Since our approach remains cautious, we will get into smaller towns, but it will be slow and steady. Our team in India is constantly conducting feasibility studies before entering new towns and that effort will continue. We will look at those clusters which are closer to the large cities to begin with.

Give us your sense of the importance of the Indian market for METRO. Where does it stand at the moment for you?

India has the potential to become one of our top five markets in terms of revenue contribution in the next 10 years. 

This is provided everything — from policies to the steps we take — works in our favour. I want METRO to be the champion for free businesses and emerge as the preferred partner for all traders in India. And we are very focused on our job at hand.

You have attached a rider to your growth prospects in India. Do you see significant challenges despite India moving up in terms of the ease of doing business?

The transformation that India is undergoing is phenomenal. The thrust on food processing and organised retailing initiated by the government, push for strengthening infrastructure, and the opportunities in public-private partnership are some examples of this. 

But the high real estate prices and acquisition of land still remain significant challenges in most major cities. While we are developing a regional strategy to tide out this issue of land acquisition and development, there are other challenges. Two points that I raised in my interaction with the Prime Minister (during the World Food India event in Delhi) pertained to easing single-window clearance for licensing. This now takes up to 18 months, which is not feasible if we have to set up stores quickly. Second, infrastructure, especially in logistics, has to improve fast.

As a global retailer and wholesaler, what did you do to adapt to the Indian market? Unlike international markets, retail and wholesale here have always been small and unorganised. 

I won’t deny it that when we first entered India (in 2003), we thought that what worked in other markets would work here too. That Indians would take to our business model quickly. That wasn’t the case. It took us 14 years to set up 24 wholesale centres in the country. But we have learnt from our mistakes. We now want to have much smaller stores than we have traditionally had. While we earlier had 10,000 sq. m stores, we are now building 3,000-4,000 sq. m stores in India. These are more efficient and quick to set up. Of the 24 wholesale distribution centres in India, eight were set up in the last 24 months. So, our speed to market has improved. These are some of the learnings from India and the strategy is that we have to be as local as possible and understand the culture that prevails around the distribution centre we set up.

You are also building your presence on digital. 

Fast-tracking stores is one aspect of what we do. We are also building a digital business. This includes a broad range of tailored products that we now offer online, as well as providing the necessary services to equip customers in the institutional and retail domains to run their businesses smoothly.

For instance, we are running a pilot project in Hyderabad to bring kirana shops on the digital platform. From placing orders online and keeping a track of their inventory levels to promoting their businesses through the digital medium and filling tax returns digitally under GST – we are aiding the local kirana stores in all forms. We also supply to their doorstep, as reorders get placed automatically once inventory levels are below par. We are also offering credit to them. We are exploring a similar model for the hospitality sector too.

What are the learnings you are taking globally from India after nearly a decade and a half of operations here?

We have five collection hubs in the country and increasingly using India as sourcing hub for the globe. For example, during the last one year we have sourced over 6,000 metric tonnes of shrimps, which amount to ^30 million (Rs 200 crore). Products like rice, fish, mangoes, and textiles are some other areas we expect to expand to in the future as far as sourcing from India goes.

India also bears the potential to become a global talent sourcing hub for us. Recently, we sent two people – the India chief financial officer to Kazakhstan and another person from the local team - to our HoReCa (hotels, restaurants, and cafés) unit in Germany. These are big moves and should help these individuals grow as well as give our global teams an Indian touch.