CASH AND CARRY (C&C) FORMAT INTRODUCTION TO C&C

The term Cash & Carry means that customers can directly do their shopping in the warehouse type no frills Distribution Centers at will; pay in cash and carry the merchandise away without any hassles. They get a better price/ performance rate, wide range of food and nonfood assortments, immediate availability of merchandise and longer business hours per week. C&C is defined as wholesale depot operations from which retail customers purchase goods in bulk, pay in cash and provide their own transport. They accept low net profit margins, in return for high-volume sales, and thus are able to keep costs to a minimum. Customers of C&C formats include small retailers, hotels, restaurants, caterers & other Institutional buyers. C&C is a membership based retail store viz. you need a membership card to buy at the format. C&C stores offer branded goods as well as private labels. It is based on a Business to Business (B2B) model which brings together small, medium and large sized producers, farmers, agricultural cooperatives and manufacturers with the dispersed community of hotels, restaurants, caterers, traders, retailers and small to medium business enterprises. It can be called as a One-Stop-location where all the customer needs are under one roof at lowest wholesale prices. C&C is the only retail format where 100% FDI is allowed in India. No FDI in front end Multi brands retail is allowed in India. Single brand retail is restricted to 51% for foreign partners. In foreign countries, membership for C&C stores is open to small retailers as well as individual consumers. In India, the membership is open only to small retailers.

PLAYERS IN INDIA

CURRENT PLAYERS

Metro currently runs 4 stores in India 2 in Bangalore, 1 each in Hyderabad and Mumbai. It is expanding in a huge way on pan-India basis.

UPCOMING PLAYERS

Tesco is planning to setup C&C stores by 2009 end. It Plans to invest up to US$ 114m on setting up three hubs at Mumbai, Delhi & Bangalore. Videocon (Bolld C&C) is starting its C&C operations by March 2009. They plan to invest Rs 2,000 crore in the next 3 years. Carrefour, another global major, is planning to start its operations in India by Mid 2009. The US$ 75 billion multinational retailer is planning to invest US$ 100 million and will start from the national capital region. Globally, Carrefour has 120 cash-and-carry outlets. Bharti-Walmart The JV is aggressively planning to enter the C&C format by 1st quarter of 2009. Other players entering the format are Reliance Retail, Indiabulls (Megasave C&C), Future Group (KBs Wholesale market), Wadhawan group, Costco.

DIFFERENCE BETWEEN B2B (CASH AND CARRY FORMAT) AND B2C RETAILING

Parameters

B2B format Cash and Carry

B2C format Hypermarket Higher than B2B but lower than Supermarkets More than 60,000 SKUs Located at nonprime locations, outskirts of major towns & cities 30,000 - 1.5 lakh sq ft Household Diverse offerings and High quality products & services at prices lower than Supermarkets and department stores No No restriction. You can even leave without buying anything

B2C format Supermarket Less than MRP and comparatively low price to Mom-n-Pop stores More than 8,000 SKUs Convinience location 2,000 - 8,000 sq ft Household

Price Product Location Average Size Target consumers

Low Around 18,000 SKUs Located on the outskirts. Based on availability of space 1 lakh plus sq ft Institution, Retailers, Cooperatives

Value proposition

Bulk packs at low prices

Variety, quality & service. One stop family shop

Membershi p requiremen t Minimum purchase quantity

Yes

No No restriction. You can even leave without buying anything

Specified

Packet sizes Assortment focus

Multi packs/Large packs Business needs

Single packs Individual customer needs

Single packs Individual customer needs

ROLE OF C&C IN RETAILING IN INDIA

C&C can help in the growth of all the stakeholders in the retail chain. The role of C&C in retailing is as follows.
FOR RETAILERS

Reduction in working capital & cash - They have the access to stocks at their convenience and the quantity they need. There could be free Shelf Space due to reduced need for stocking. Their capital is not stuck in inventory and can be used in the business.

Access to niche/low volume products Products which are generally cant be procured in bulk can be accessed easily in C&C formats.

Lower prices Low prices offered by C&C formats to small retailers can definitely help them to compete with the big organized retail players with muscle power. The benefits of the lower costs will be definitely passed on to the end consumers.

FOR SUPPLIERS

There can be a marked decrease in distribution and marketing costs. At the same time their customer base would increase

FOR FARMERS

There is a very transparent written agreement with the farmers along with Regular orders. The payment is guaranteed within the agreed time and goods once purchased would not be returned.

Regular Training in the areas of Grading, processing and packaging and also productivity improvement are given to the farmers. For eg. Metro invested in training programs for more than 40,000 sheep farmers as well as 1,150 fishing crews from India and helped to vaccinate and de-worm around 1 million sheep and goats.

It eliminates the middle man from the picture who do not add any value to the product but just increase the overheads. The damages and loses for fresh products in India are as high as 35% between the farm gate and the consumers. This can be converted into higher profit realization by farmers.

GENERAL

The arrival of foreign players has brought in sophisticated technologies for the supply chain. There is a direct pick up from growing areas in cooled vehicles and will be stored in temperature controlled conditions, thus multiple handling is avoided.

C&C business can also generate huge employment opportunities. It is set to offer jobs in the range of 30,000-40,000 in the next 5 years.

CHALLENGES TO C&C IN INDIA

Absence of large logistical chain - An efficient supply chain consisting of infrastructure, systems, distribution concepts and format go hand in hand with the rapid development of the economy. India lacks an efficient logistical chain due to multiple layers, intermediaries and geographical boundaries.

Lack of trained manpower & poaching by competition.

High real estate prices - Commercial rentals have gone up by almost 50% in the last one year in the cities such as Mumbai and Delhi

Poor production system Use of conventional methods of farming and lack of irrigation facilities.

Poor infrastructure with a supply chain system that is not really market-oriented and incurs huge product wastages

Resistance by trade groups like APMC - 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.

FUTURE OF C&C IN INDIA

As seen by the GRDI window of opportunity diagram below, we can see that India is a peaking market implying that it offers a huge potential for modern retail. This is the ripe time for the foreign and local retailers to enter into the retail market before it gets saturated with large number of players. As already evident, there is a spate of alliances and market entry announcements from large conglomerates into the country. The market will mature in the coming 2-3 years with global players fighting for the market share.

Fig 2. GRDI window of opportunity graph

CASE STUDY METRO CASH AND CARRY, MUMBAI METRO WORLWIDE

The METRO Cash & Carry success story began in 1964 with the opening of the first wholesale outlet in Germany by Professor Dr. Otto Beisheim. Today the company is represented in 29 countries with METRO and MAKRO Cash & Carry stores at 623 locations - and offers its commercial customers up to 50,000 different products from a single source. With more than 100,000 employees worldwide, the company achieved sales of 31.7 billion

in 2007, a 6% y-o-y increase. METRO Cash & Carry is a sales division of the METRO Group, one of the most important international trading companies. In 2007 the group reached sales of about 64 billion. The company has a headcount of some 280.000 employees and operates over 2,200 outlets in 31 countries.

Fig 3. Makro and Metro C&C stores worldwide uptil Aug 01, 2008 METRO MUMBAI

Situated at Magnet Mall, Bhandup (W), the store occupies 1,00,000 sq ft. (Metro is also planning to launch two more stores in Mumbai soon 1 in Thane and another in Borivali). It is the only C&C Metro store in the world which has multilevels viz. 60,000 sq ft for the ground level and 40,000 sq ft for the first level. The selling space of the store is around 70,000 sq ft. The

store employs 390 employees and is open for 16 hours a day to cater to the needs of its customers (6 am to 10 pm). Children below 18 are not allowed to enter the store. Also, only one person is allowed to accompany a card holder. The company exclusively caters for professional customers like hotels, restaurants and small retailers like Kirana stores. The assortment and services are tailored to the special needs of this target group. Only a person who has a card can enter the store. Around 60,000 membership cards have been sold by Metro in Mumbai. There is a minimum buy of Rs 1,000 for the store. The store has 21 counters for cash collection. The company has a warehouse in Bhivandi where sorting and packing of items takes place. The Bhivandi warehouse is 1,20,000 sq ft, bigger than the C&C store itself. The temperatures for different sections of the store are controlled as per requirement. For eg. Fruits and vegetables were kept at near 0 degrees, fish and meat were kept at -10 degrees, etc. The store has Hand held terminals (HHT) which gives data of the units which are moving off the shelf. The store has 3 forklifters and 4 stackers for stacking the goods properly. Around 95% of the goods on display in Mumbai originate from local producers and distributors. The store has 18,000 MSUs on display (8,000 of Food items and 10,000 of non-food items). Metro also has 9 private brands viz. Aro, Quality (Hotels), Lambertazzi (Leather), Sigma (Office), Tarrington (Home textiles), Alaska (Home appliances), Active (Sports), Authentic (Clothing), Varesa HUL has one of its employee permanently stationed at the store to take care of the companies merchandise in the store. The employee is on HULs payroll.

CONCEPTS ONLY AT METRO

MSU Metro Stock units It is similar to Stock keeping units (SKUs). As SKU means 1 unit, MSU means 1 pack which might contain more than one of such SKUs. As C&C is a wholesale store, products are available in bulk and hence all the products are in bulk and not single packing. MGB Metro Group Buying MGB is a group of Metro employees who sit in Delhi. They negotiate bulk deals for products for all their stores in India. Generally, the negotiations are for imported items.

STRATEGIES AT METRO

Marketing mix Metro doesnt use any advertising as it is a B2B retailer. It mainly uses Sales promotion to woo the customers. It has many promotional activities going on in its store throughout the year. It also issues a fortnightly newsletter called the Metro Mail. Metro mail gives the information about the best buys available in the store in the coming weeks. Metro mails are available on their website and is sent to the residence of all the card holders. They also do a lot of PR activities.

Metro uses Yellow colored paper on which the description and prices of all the commodities are mentioned below the goods. Orange colored papers are used for the products which are Best buys as would have been mentioned in the Metro Mail. This becomes very convenient for the buyer. Goods which are fast moving are marked by Red outline to the yellow paper to indicate that these are items which require quick replenishment and hence vigilance is required.

Usually, C&C stores only accept cash. However, for the convenience of the customers, Metro allows credit buying. For this, only Diners club and Citi Credit Cards are accepted. Also, the credit needs to be paid in 2 EMIs. Also, Metro charges 1.5% service charge on the first installment. This acts as an deterrant for the customers to buy the goods on credit.

When amount at a particular cash counter reaches Rs 1,00,000, the system hangs and it acts as an indications to the cash registrar that the money needs to be transferred to the bank. The money is put into a sucking machine (BOM) at each counter, which is sucked through a vent to a location above the store in a bank where store personnel sits. The store personnel deposits the money in the bank.

Metro offers Free Home Delivery for billing of over Rs 50,000. For bills below Rs 50,000, the responsibility of delivery of the goods is of the customer. To help customers with the delivery of their purchases to business premises, Metro has partnered with Relogistics.

Owing to the cash on purchase model, Metro accepts a credit period of 7 days instead of industry standard of 15 days from suppliers in return of attractive prices for the products.

Ghee collecting trays This a technique used to avoid spoilage and wastage. The Ghee pouches are kept in a special tray whereby if any of the pouch has a leakage, the ghee jus percolates down the slope of the tray and it is collected in a jar placed behind.

Stack it High, See it Fly This is an interesting strategy adopted by Metro related to the psyche of the customers. Metro stacks all the items vertically instead of horizontal stacking at majority stores. As the products come in the line of sight of the customer, the probability of them having a look at the product and buying it increases.

SUGGESTIONS

In store advertisements Metro should try to look at earning revenue by using this concept. In store paid advertising is more meaningful to the manufacturers and brand owners. In store advertisement exposes the ads to the customers directly. Future group is also entering into in store ads with Future TV in its stores.

Plastic bags for convenience instead of Cartoons At Metro, the bought products are packed in a cartoon instead of plastic bags. This can be very inconvenient for the customers to carry. The plastic bags are given for Rs 4 at the store. For the convenience of the customers, plastic bags should be used to pack the goods instead of cartoons of they insist.

BIBLIOGRAPHY

Cash & Carry: Huge untapped potential - Retailer Magazine article, Aug 08 edition

ICRIER report, May 08 A.T. Kearney 2007 Global Retail Development Index India : The global Retail scenario, Sep 07 Fibre2fashion.com Retail formats Naukrihub.com Metro India website www.metro.co.in METRO Cash & Carry opens first Wholesale Center in Mumbai IndiaPRWire.com, 7th May 08