Cash and carry space hots up with entry of local players

When French Retailer Carrefour enters the Rs 1,200 crore cash and carry segment in 2009, it would face tough competition from established players such as Germany's Metro, Bharti-Wal Mart, Reliance, Pantaloon, Wadhawan Retail and others entrants like Tesco and Costco.

The cash and carry market is a small portion of the whopping Rs 40,000 crore (nearly $400 billion) retail sector.

The main attraction for these players is the absence of organised players, a growth rate of 35-40 per cent and a potential launch pad for their entry into organised retailing when foreign direct investment curbs are lifted.

Besides, the size of the Indian retail sector is set to double by 2015 and the share of organised retail is expected to rise from a mere 4 per cent now to 10-15 per cent of the total retail pie.

"Smaller retailers in interior markets often struggle to obtain the same service levels and prices from the companies' distribution structure as retailers in the mainstream markets. Global retailers will use the opportunity to set up wholesale stores in India to understand the market. This will inform their entry strategy when FDI norms are eventually relaxed,'' said Mala Morris, senior business analyst, IGD, a UK-based researcher of food and grocery retailers worldwide.

Adds AT Kearney's Hemant Kalbag: "The market is very big with open space for big cash and carry operators. Even if market saturates later, the fundamentals remain same with retailers buying huge quantities from the suppliers," Kalbag adds.

While Germany's Metro is taking its stores to Mumbai, Kolkota, NCR and Punjab in the coming months, Bharti Wal-Mart joint venture is expected to roll out its first wholesale store by the end of next year. Over the next seven years, the venture is expected to open 10-15 wholesale cash-and-carry facilities and employ about 5,000 people.

But Subhiksha Managing Director R Subramanian said companies such as Metro and Wal Mart are only using the cash and carry format to enter retailing in the country.

"It is not out of choice they are entering the cash and carry segment, but it is the only way to enter the Indian market at present. I do not think there is great scope for cash and carry operators since the manufacturing companies have good distribution network and retailers have easy excess to credit and supplies," Subramanian said.

Amidst the increasing interest from foreign players, domestic retailers were not going to be left behind. Pantaloon, the country's largest retailer, is launching KB's Wholesale Market, its wholesale prototypes in Mathura in Uttar Pradesh and Bardaman in West Bengal.

Based on their success, the company plans to launch several stores in West Bengal, Gujarat, Karnataka, Maharastra, Uttar Pradesh and Chhattisgarh.

Reliance is also planning to launch its B2B format called Reliance Cash and Carry by March 2008. It has already roped in Harsh Bahadur who was earlier with Metro. Its cash and carry stores will come up in Hyderabad and Bangalore. Wadhawan Food Retail, which runs convenience store chain Spinach, is also eyeing the cash and carry format.

"Strong B2B presence will help in collaborating with retailers, hence we want to be a one point supplier to small retailers than to leave them at the mercy of the big FMCG companies," said a spokesman of Wadhawan Food Retail.

But everything is not hunky dory for these players as mounting real estate costs, supply chain issues and anti-retail protests have dogged their operations.

For instance, Metro opened its third shop in Hyderabad after five years of its existence in Bangalore.

Commercial rentals have gone up by 50 per cent in the last one year in the cities such as Mumbai and Delhi and organised players like Reliance are facing a lot of resistance in many states including Uttar Pradesh, West Bengal, Madhya Pradesh, Orissa and Kerala. Recently, many trade groups organised a rally in Mumbai to protest against the entry of foreign retailers such as Metro and Wal Mart.

Though Metro Cash & Carry India's Operations Director Alan Clayton believes that real estate is a major concern, he does not endorse the political and trade backlash against the organised retailers. "We are not at all moderating our expansion plans. These protests are done by those who have vested interests to keep prices high. We will have stores pan India'', says Clayton.

Says John William, senior partner, JC Williams Group, US, former consultant to Wal-Mart: "The biggest challenge for the players is real estate and people to manage specialised operations. Everybody is poaching from other players. Having a local partner could solve some of the issues."

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Germany's Metro
Is taking its stores to Mumbai, Kolkata, NCR and Punjab in the coming months

Bharti Wal-Mart
Is expected to open 10-15 wholesale cash-and-carry facilities and employ about 5,000 people in seven years

Pantaloon
Is launching KB's Wholesale Market, its wholesale prototypes in Mathura in Uttar Pradesh and Bardaman in West Bengal

Reliance
Is planning to launch its B2B format called Reliance Cash and Carry by March 2008 in Hyderabad and Bangalore. It has already roped in Harsh Bahadur who was earlier with Metro.