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Rediff.com  » Business » Wal-Mart opens new front for battle-hardened Metro

Wal-Mart opens new front for battle-hardened Metro

June 24, 2009 12:06 IST

In the six years that it has been in India, Metro Cash & Carry has faced many hurdles, including a sustained 'Quit India' movement by the associations of local traders. The Red brigade in Kolkata almost derailed its plan to open a 100,000 square feet outlet in the city last year.

So Metro India Managing Director Martin Dlouhy is unfazed by the latest challenge -- this time from Wal-Mart, which inaugurated its first cash & carry centre in the country last month.

"The entry of other players in this segment will help in reiterating the benefits of the cash-and-carry concept to Indian customers," he says. It may be the first time anywhere in the world that Wal-Mart and Metro square off in the cash & carry format.

Dlouhy's apparent nonchalance can't hide the fact that Metro may be facing one of its most difficult challenges in the country. Apart from being a more recognised name in India, Wal-Mart has announced 15 more stores with partner Bharti Group in two to four years.

In comparison, Metro's progress has been sedate. The world's fourth largest retailing group, which opened its first centre in Bangalore in 2003, has so far opened just five centres in six years. It has plans for six more over the next five.

"We want to expand fast, but unavailability of real estate and challenges faced due to the multiplicity of licences in various states has slowed our pace," says Dlouhy. In metros, finding a five to six acre plot has been a difficult proposition and hence most cash & carry formats are focusing on secondary cities.

Wal-Mart's entry, on the other hand, has been smooth, with its first wholesale store opening in Amritsar on May 31 this year. The joint venture with Bharti was signed in August 2007, construction of the store started about a year later and the inauguration of the store under the name Best Price Modern Wholesale happened within another year.

In contrast, Metro has faced hiccups.

In Kolkata, for example, it had decided to start work in 2005 and was given a licence. But it ran into a land dispute in 2006. Before the dispute could be resolved, Metro's licence was cancelled as the Forward Bloc, a partner in the Left Front government, set itself against granting permission to Metro.

At one point, the wholesaler threatened to scrap its plans to open the store. Finally, Chief Minister Buddhadeb Bhattacharjee intervened and the licence was issued in October 2008. The store was opened in December by former cricketer Sourav Ganguly.

Wal-Mart has challenged Metro on many other fronts. It has decided to give up to 25 per cent discount over the local wholesale market at its 50,000-sq-ft Amritsar store and has already got 30,000 kirana stores, hotels, restaurants, and offices as members.

Besides, it was the first to announce a co-branded business credit card that will enable registered customers to access credit facility for purchases made at its stores.

Metro has reacted fast and is planning to launch similar credit cards to its customers who are short of working capital. The company will tie up with banks and financial institutions for this.

Analysts say Wal-Mart wouldn't have it easy as Metro has a distinct first-mover advantage -- after all, it already has half a million customers.

Industry sources say Metro, on some peak days, has been able to generate sales worth Rs 1 crore (Rs 10 million) in a day at its Bangalore centres, but as is the wont of many multinationals in India, Metro declined to share revenue figures.

However, according to industry analysts, an important metric that cash & carry formats use to assess the success of a store is to measure the frequency of visits from a certain census of population, and Metro has been relatively successful on this parameter.

Dlouhy says educating the market in India is a constant process. The fact that there is a cost associated with distributors and the credit they extend is often masked to a small retailer is one education issue which Metro is attempting to address.

"On top of it, a small kirana may not have a registration number or licence from the state government for him to become a member with us. These are the people who need the support of cash & carry formats the most. We have to face these issues and are at it on a day-to-day basis," says Dlouhy.

Metro has been structurally working its way into the farms and sometimes into the hearts of farmers and fishermen by sharing best practices in farming and fishing and enabling themselves to buy directly from the farm-gate, thus slashing substantial intermediate costs.

That explains its extensive training programmes for fishermen and sheep owners. For example, the retail giant teaches fishing crews how to cool fish by immediately gutting and stuffing them with shaved ice. Its managers have already visited over 40,000 sheep owners to show them how to vaccinate their herds and treat the animals for sickness.

Metro has also tackled the fundamental problem of wastage (estimates put it at almost half of the produce in India) by putting its infrastructure in place -- the company has set up a huge supply chain transporting refrigerated foods across India.

Dlouhy says the company does all this as "by definition, our business model is based on low-margins and low costs. We are at the source as much as possible through which we substantially pass on the benefit to our customers."

Wal-Mart in India is surely taking note of that.

Raghuvir Badrinath and Mahesh Kulkarni in Bangalore
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