Metro Cash & Carry and the never-ending search for B2B-grocery riches

Everyone from Reliance and Thailand’s CP Group to Swiggy and Adani Group is said to be interested in buying into struggling German wholesaler Metro Cash & Carry. Despite Metro’s 31 outlets spread across 21 cities, however, the business only makes sense as a minor cog in the online-grocery wheel

After almost two decades in India, Metro’s revenue is still well short of US$1B, a sign of how hard the grocery-wholesaling business is

Even so, it seems to have a range of suitors, only one of whom—CP Group’s LOTS Wholesale Solutions—is also a cash-and-carry player

Swiggy’s quick-commerce service, Instamart, can benefit from Metro’s sourcing efficiency only if Metro continues its existing business, which is capital-intensive and hard to scale

Complicating matters is the fact that FMCG companies continue to expect Metro to play second fiddle to their existing distribution network

If you need to know how hard it is to run a wholesale-grocery chain in India, look no further than the topline of the German company that introduced the concept to the country in 2003.

Metro Cash & Carry’s revenue in the year ended March 2021 was just Rs 6,500 crore (~US$835 million). For context, DMart, the Indian supermarket chain that began its journey around the same time as Metro, posted sales that were over 3.5X in the same period.

And unlike DMart, a handsomely profitable company, Metro is still in the red after trying to hack it for years, even though it’s closer to profitability than it has ever been before. Metro’s gross margins of ~11% are lower than DMart’s 14-15%.

“You need operational efficiency of another level to sustain this business,” says a retail analyst with a domestic brokerage. They and several others quoted in the story requested anonymity as they are not authorised to speak to the media.

So, it hardly comes as a surprise that Metro is reportedly reportedly The Economic Times After 19 years, Metro plans to cash out of India business for $1.5-1.75 billion Read more in talks with a range of companies to sell its India business for US$1.5-1.75 billion.

What’s interesting, though, are the kinds of suitors in question.

There are some predictable names, such as Thai conglomerate Charoen Pokphand (CP) Group, which is looking to add to its three cash-and-carry stores in India. E-commerce behemoth Amazon and private-equity firm Samara Capital Samara Capital Business Standard PE firm Lightspeed gets bid invite for Metro Cash & Carry's India ops Read more , which together own the More supermarket chain, are also in the running.

Then, there’s Reliance Retail, which exited the offline wholesale business in late 2020, despite being the largest player. The company turned its 52 cash-and-carry Reliance Market stores into fulfilment centres for its e-commerce service, JioMart JioMart The Ken A year after its launch, JioMart’s e-commerce book is still in its first chapter Read more .

The unlikeliest candidate of them all, though, has to be food-delivery giant Swiggy. Its interest in Metro relates to ambitious plans for its rapid-grocery-delivery service, Instamart. In December 2021, Swiggy said it would invest US$ 700 million 700 million The Economic Times Swiggy earmarks $700 million for Instamart amid insant grocery wars Read more in Instamart over two to three years.

AUTHOR

Seetharaman G

Starting out as a business journalist in 2008, Seetharaman has written about energy, climate change, retail, banking, and technology. He has worked with Business Today, a fortnightly, and the Sunday edition of The Economic Times.

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AUTHOR

Aayush Agarwal

Aayush covers businesses that are primarily Internet for The Ken. In his previous stint at Goldman Sachs, he spent slightly more than a year analysing investment opportunities in the China Internet space. A science graduate, he completed his postgraduate from the Indian Institute of Management, Kozhikode. Write to him if, among other things, you wish to talk about e-businesses, journalism or just offbeat career choices.

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