The credit for the recent transformation of the retail sector in India cannot only go to the glitzy shops in the malls, the big retail chains and the conglomerates of international brands, much is happening at the backdrop to give retail a more organised shape even at the most grass root level. The cash & carry or wholesale trading is one such area where the government of India has permitted 100 per cent FDI - a significant call for many foreign players. This permit has been making a considerable change in the modus operandi of wholesale trading drawing a clear line of difference between traditional wholesalers and organised cash & carry retailers.
The utilities
This organised lot of cash & carry retailers, backed by the strong framework of foreign financial support, are the big buyers of the agricultural produce from the farmers. Germany-based Metro Cash & Carry, which operates in India, generates more than three-fourth of its total sales from the food sector. These cash & carry retailers buy the produce at the competitive price and the entire transaction process is transparent enough to keep the small producers happy.
The company spokesperson of Metro Cash & Carry says, “They can also utilise Metro Cash & Carry as their warehouse and thus reduce the capital required for their business. This reduces costs incurred in procurement and makes inventory management more efficient. Also, the small kiranas get access to quality goods. The assortments are specially geared for the small traders and all of this helps them do their business more efficiently.” Metro Cash & Carry works closely with local suppliers and producers like farmers etc. and up to 90 per cent of its products are sourced locally - especially the food products. The Bharti Walmart spokesperson informs, “There are an estimated 12 million kirana stores in India of which as much as 90 per cent are not directly serviced by India’s FMCG majors. Best Price Modern Wholesale store offers a great way for them to get access quality products at the prices they need when they need them.” Bharti Walmart is formed by a 50:50 JV between Bharti Enterprises and Walmart to run the cash & carry retail store, Best Price Modern Wholesale. The products are available with an option of bulk packs, refill packs and multiple-packs for convenience of the business customers like kiranas, hotels, restaurants, etc.
Training - an important agenda
The educator-learner relationship between the organised cash & carry retailers and its buyers is another aspect of this format of modern retailing. The training programmes by these retailers forge a new bondage with their customers injecting modernisation to the core. Bharti Walmart has created an innovative kirana store model “My Kirana” that is tailored for kirana stores to provide them training and insights into areas such as assortment planning, hygiene, in-store displays, inventory management, value added services, etc. In addition, different education programmes for members with customised modules for different target segments like Taxation, Food Preparation, Food Safety and Category Workshops have also been introduced. Metro Cash & Carry has successfully conducted training programs for sheep farmers and fishermen in Andhra Pradesh & Karnataka and initiated various customer connect and knowledge sharing platform like Chef-o-logy, wherein the industry experts like chefs, hoteliers, and food and beverage professionals interact and share knowledge and expertise on a regular basis.
Mandis - still the majority
The organised cash & carry format is still new today and the traditional mandis still holds more than 98 per cent of the market share. But, over time will they be able to sustain themselves while battling the technologically and financially better positioned modern cash & carry retailers? Mr Narayanan Ramaswamy, Executive Director, Retail Advisory Service, KPMG India comments, “Given the Indian landscape, it will be impossible for the organised players to cover all of India - specially the rural, tier III and below centres. Yes, mandis will lose their sheen in urban, tier I & II centres, but will remain for more time, perhaps get themselves better equipped in the coming years.” Beside its higher penetration in the country, the credit payment facility of these traditional mandis is one factor to draw more customers. Mr Purnendu Kumar, Associate Vice President, Technopak Advisors explains, “Billing and paperworks sometimes work as disadvantages for organised cash & carry retailers since small retailers don’t pay taxes usually.” Mr Hemant Kalbag, Head, Consumer Industries and Retail Practice admits the traditional mandis’ role as a business hub for gravitating towards competitive pricing at a specified geographical location under one roof , but points out its lack of economic scale since mandi is a conglomeration of different shops, each having separate supply chain.
Government policy
“India is slowly recognising this important sector. The regulation is clearly taking some time but this is expected as cash & carry is a new industry. The government has just come out with the guidelines for the cash & carry industry; it has already proposed a reform in the APMC Act (Agriculture Produce Marketing Committee Act) which several states have already legislated”, informs Metro Cash & Carry spokesperson. On recent regulation by the Government authority for FDI in wholesale retail not permitting cash & carry retailers to exceed sales more than 25 per cent of its turnover to its partner retailer, Mr Hemant Kalbag opines, “It is right for the government to pre-empt the cash & carry retailers to become a vehicle for multi-brand retail, but there is too much ambiguity in the policy and the purpose of the regulation should be crafting a long term roadmap for the development of cash & carry retail.
Although the indigenous distribution network in the country is tough to replicate for the organised cash & carry retailers, the growth prospect of organised cash & carry retail is quite positive. Given a steady supply side growth, cash & carry retail is growing at 30 per cent over a period of 3-5 years. Potential government intervention can be a boost for this industry.
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