Swadeshis on warpath over Metro

Tirades against multinationals are not exactly new in India's software capital.

First it was the movement against Cargill, the US seeds giant. Then it was the turn of Kentucky Fried Chicken to face the heat.

And soon after setting up shop last week, the €52 billion German retailer Metro Cash & Carry is finding that one group after another is springing up to oppose its entry.

The Swadeshi Jagran Manch on Monday joined the traders' community in Bangalore to express its objections to the setting up of India's first cash-and-carry retail venture.

So what's Metro all about? It follows a B2B model where businessmen, shopkeepers, restaurateurs and procurement managers can go to Metro for all their needs.

One has to pay cash and carry goods out of the store. Metro does not deal with the retail segment. All goods are sold only in bulk.

Harish Bijoor, a marketing consultant who earlier worked at Tata Tea, says: "Though supermarkets have been around in the country for the last 18-odd years, true blue aggregation of business is represented by the Metro model. This model is going to challenge many an entity in the market."

If Metro succeeds, the first endangered species is these stockists, who today make anything between a 6 per cent and a 20 per cent margin.

"The middleman is in danger of losing precious volume through the Metro model. This is inevitable in the long run," noted Bijoor.

But the SJM says Metro is indulging in predatory pricing, and adds that this is aimed at wiping out competition and establishing a monopoly.

Says Dr C Abraham Verghese, all-India co-convener of the SJM, "Metro is a 'free cheese mouse trap'. Even though it is customary to give a concession when items are bought in bulk, Metro is providing concessions of up to 10-30 per cent on the maximum retail price.

"However, they attribute it to the efficiency that they are bringing into the wholesale system. In our opinion, one can do this only based on the commission they are getting from manufacturers or it has to voluntarily give such concessions.

"In this case, marking down the value of the products indicates that they are paying from their own pockets."

He adds: "Metro is violating the licensing agreement by venturing into the retail segment by selling smaller quantities of goods to individuals (multinationals are not allowed to enter the retail segment). Though it has taken up two shops in the Agricultural Produce Marketing Committee yard, it is only a gimmick as it will undercut prices to lure customers to the store."

Harsh Bahadur, managing director, Metro Cash & Carry India Pvt Ltd, denies this. He says, "Metro Cash & Carry will only sell products fully in compliance with all central and state level statutes.

"Since this issue is still not resolved we have not stocked any notified agricultural commodities in our distribution centre. We will continue to discuss with the government to resolve the issue as soon as possible and go ahead with distribution of fresh produce."

Say Arvind Singhal, chairman, KSA Technopak, the New Delhi-based management consultancy that focuses on the retail sector, "This is a pure B2B model and it will create a visible impact if it succeeds. Many similar models from Indian entrepreneurs will be coming up on the same lines.

"The food business is huge and the Golden Quadralateral Highway Project will boost this sector much further. Tens of thousands of restaurants will come up along the highways and each one of these outlets will need a range of products such as cutlery, crockery, furniture, uniforms, cash registers and a host of other basic needs which they can finish shopping at one go from Metro, along with their regular provision requirements.

"The rhetoric going on, I think, is politically motivated and I do not see this agitation having any significant impact on Metro's operations in the country. There are interesting and exciting times ahead and we should see significant growth of this sector."

Dipankar Halder, associate director of KSA Technopak in Bangalore, adds: "Like any other developing country we have a long way to go to have efficient supply chains. This is valid for almost all product categories and the reasons are many.

"In some cases there are structural inefficiencies, in some cases processes are to be blamed, both and more in some. An experienced and serious player like Metro would have a significant impact.

"Both upstream members like manufacturers/suppliers -- or farmers in cases of agricultural produce -- and downstream members like retailers are likely to benefit, not to talk of the end-consumers.

"I understand that many a vendor to Metro is having a tough time learning to do business the Metro way: the process, documentation, policy, efficiency and so on. I am sure that one day they will thank Metro for initiating the process of moving them to the next higher level of learning and effciency."

Haldar says: "One must appreciate the effort and investment that the group has done over last two years to make sure that every thing goes well. It has been successful in most countries and I would love to see it succeed here as well. Its success will not only improve the sentiment of the locals about the business but also make the way for other large international players."

On small distributors going out of business, Haldar says: "The entry of an international player does not mean the end of domestic players. In over a decade, the entry of international players in China has fueled the retail sector's growth significantly while the share of international players remained less than 20 per cent. Some inefficient players will go out, but isn't that a part of any progress?"

Advait Kurlekar of Cedar Enterprise Solutions, a Mumbai-based international management consultant in the retail space, said: "The opposition to Metro's entry is out of place. The retail segment is where the Wal Marts of the world enter India, which might cause an upheaval. Even when Hindustan Lever started its direct marketing venture, a section of distributors cried hoarse. But that ruckus ended soon as it did not have any basis. Such B2B models already exist in India in the agricultural sector such as Krishak Bazaar in Haryana, where it is doing yeoman service for the agrarian community. Companies such as ITC, Nagarjuna are also doing work in this sector."

Voicing his views on this development, another retail chain and Fabmart's brick and mortar version, Fabmall's Vice President Vipul Parekh said: "With Metro's muscle it is obvious that they can price out a substantial part of the distribution chain as it exists today.

"As a result over a period of time that could become an issue for manufacturers where their margins would get squeezed further as their reliance on Metro increases and at the same time their entire distribution structure could be in peril.

"There is no regulatory provision or any kind of check on predatory pricing which the government is in a position to exercise. This could create an unfair advantage for Metro in the distribution game if they adopt such a strategy.

"As far as retail is concerned we believe the entry of foreign competition is inevitable and local retailers need to gear up on efficiency, scale and customer service if they want to stand a chance against them."

Metro officials, meanwhile, are not giving out sales projections but a comment, which they made is that they are confident of duplicating their Vietnam sales figures for the first year, which is around Rs 450 crore (Rs 4.5 billion).