Cash & Carry: Huge untapped potential

Indian retail is at its peak and it is experimenting all new formats in order to make the unorganised retail a more organised one. To cater to the large unorganised supply chain and logistics and overcome its shortcomings, Indian firms are tying up with foreign retail firms. Cash and carry is the only format wherein 100 per cent FDI is allowed. Cash and carry in India is quite synonymous with metro cash and carry. Largely, the way a common man understands by cash and carry format is that it is not like any other retail outlet where in one can go and buy items. Cash and carry as a retail format relates to the buying of goods in bulk by the membership card holders. Commenting on the cash and carry concept, Purnendu Kumar, Assistant Director, Technopak Advisors Pvt. Ltd, says, “Cash and carry is a membership based retail store selling limited SKUs in bulk packs. Cash and carry has a membership requirement; customers are usually members of the club and pay an annual fee in order to continue their membership. Cash and carry models are able to sell at lower prices because of the basic, no frills format of the stores, volume of sales, low cost location and lower inventory carrying costs. Cash and Carry offers private labels as well as branded goods.” Anshuman Barve, Retail Analyst, Jones Lang LaSalle Meghraj, says, “Cash and carry is not similar to normal retail; it is more of a B2B concept. B2B concept is very much important in a growing economy and definitely supports the retail industry in a positive manner and the benefit will definitely be passed on to consumers. We have only one store functional - METRO cash and carry. They presently have three operational stores and they are planning to open 24 stores in two to three years. India has thousands of mom and pop stores spread across lanes and to cater to their need, cash and carry operation has definitely huge potential. So far, retailers are dealing with the local agents.” Talking about the Khet-Se Agriproduce operations, Guy Goves, Chief Executive, Khet-Se Agriproduce, says, “Khet-Se procures directly from farmers, sorts and grades the produce and packages them and then distributes them to the customer. We are completely focused on fresh produce and our model is different from others’ as we source from farmers and actually invest in the development of farmers and small retailers.”

 

Main players

First cash and carry format in India was opened by METRO Cash and Carry in India in 2003. Currently, the company operates two stores in Bangalore and one store in Hyderadabad, one in Mumbai and one in Kolkata. Bharti-Wal-mart too would be launching its cash and carry store in North India in 2009. Tata group subsidiary Khet-Se Agriproduce India Pvt. Ltd operates cash and carry outlets for fresh produce.  Khet Se is a 50:50 joint venture of Tata Chemicals and Ireland’s Total Produce Plc. India Bulls is also planning to come up with cash and carry format with high-end membership model (on the lines of ‘Sam’s Club, an upscale Wal-Mart retail format). Videocon group has also announced the setting up of a cash and carry retail chain called ‘Bolld’.  Referring to other main players, Mr Barve says, “Future group had a plan to launch it by the name of KB'S whole sale market but, right now, they have kept the plans on hold. They plan to consolidate it and make it  part of their adhaar initiative. Bharti-Wal-mart is also looking to locations but their store might be operational in next year only. Videocon group too is looking to starting cash and carry format and they have acquired land in five places. There are definitely increased activities in cash and carry format.”

 

Pros & cons

Every retail concept adapted in the Indian context has to undergo major changes as per prevailing scenario and suit the circumstances. Cash and carry concept could be working perfectly in international sectors. Yet, when applying or employing it in Indian retail sector, there is quite a possibility for a need to undergo some important variations to make it suitable to the Indian retail. Referring to the advantages and disadvantages pertaining to Indian retail industry, Mr Barve talks about various aspects of cash and carry format highlighting its advantages and terming the disadvantages as limitations. He says, “Cash and carry definitely supports the retail industry in a positive manner and the benefit will definitely pass on to consumers. And, as regards limitations, I would say that, in India, we do not have large logistical chain; we have small-scale operators who operate for such a large outlets. For example, if a cash and carry operator wants to establish a very strong fruit and grocery outlet, then he needs to source these produces from multiple vendors. Secondly, India does not have a trained manpower. The cash and carry outlet requires people with the knowledge of the concept and know that it is different from the normal retail. Thirdly, the most important thing could be real estate prices. If retailers are looking to opening an outlet, the solution could to be to look at the options of leasing the land or leasing the premises.”   Adding to this point, Mr Goves says, “The advantages of such a wholesale business model are that you control the quality parameters from ‘farm to plate’ and you create a segment of quality conscious customers. The real challenge at the backend is the aggregation of a disaggregated production system. Add to this poor infrastructure with a supply chain system that is not really market-oriented and incurs huge product wastages.”

Referring to pros and cons of cash and carry concept in India, Mr Kumar puts his point across, “The advantages would be that one can find all items at one place; quality being offered is good; priced offered is lower and finally schemes are also offered. Regarding disadvantages, I would say that cash and carry retailers put home delivery charges, minimum purchase levels and no credit facility.”

 

Foreign players tie up

As of now, 100 per cent FDI in retail is allowed in cash and carry format in India but cash and carry formats need efficiencies in supply chain and have to increase margins by reducing wastages. The tie-up benefits both domestic and international players; domestic players learn the international best practices and international players are able to better cope with the local way of doing things. Commenting on the tying up, Mr Goves says, “Total Produce is one of Europe’s leading fresh produce providers and it entered India through its joint venture with Tata Chemicals in 2007. Tata Chemicals Ltd has built a network of agri- service centres branded as ‘Tata Kisan Sansar’ (TKS), which has long established relationships and both parties saw this as an opportunity to bridge the gap between producer and end consumer. This will significantly increase efficiencies, improve shelf-life and reduce product loss in the supply chain. Khet-Se Agriproduce will help Indian farmers to improve their incomes and develop the skills needed to raise the quality of Indian farm produce.” In the words of Mr Barve, “Indian government is quite strict about foreign retailers’ entering India. Foreign retailers are allowed to enter India either through single door entry or a cash and carry format. Metro was the first one to enter the country. If you want to shop in Metro, you need to have a sales tax number with you and it is meant basically for retailers and distributors and not for consumers. And, you cannot shop for less than Rs 1,000 and, in product offerings, you cannot buy two to three, you have to buy six or more pieces of one particular product.” Further, giving the reason for Indian retailers’ tying up with foreign retailers and vice versa, Mr Barve says, “Indian retailers are interested in venturing with foreign retailers because, we do not have capability to manage a operations for a cash and carry format. We do not have the expertise as developed countries do. Cash and carry format requires a strong backend support. Foreign players are looking for joint ventures with local retailers because they are interested in MBOs or retail outlet, apart from cash and carry format. Having an Indian partner gives them local support and they enjoy the chance to capitalise on a network, which is already established by the local player.”

 

Global & Indian retailing

Stating on the comparison between Indian and international cash and carry business model, Mr Kumar says, “In foreign countries, the membership for cash and carry stores is open to small retailers as well as individual consumers. In India, due to government regulations, the member of global cash and carry stores is only available to small retailers.”

 

More in offing

With things carefully managed and meticulously planned and with foreign retailers entering through a joint venture with Indian retail firms for a cash and carry format, the organised retail is all set to grow by leaps and bounds. Cash and carry has a huge potential of giving to unorganised distributing network a formal and specific structure and make it a lot easier for retailers buying and making profits by avoiding the middle men.

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