Retail_Cash & Carry _Group3

0 Cash & Carry Stores – A Retail Industry Analysis | Group 3

RETAIL

INDUSTRY CASH & CARRY STORES

Group- 3

Ashish Girish Arekar

Preethi Natrajan

Kinnar Shah

Shweta Anand

Umang Sota


Contents

Cash and Carry Retail Format ............................................................................................................. 3

Cash and Carry Retail Format in India ................................................................................................. 3

Why Cash and Carry? .......................................................................................................................... 5

Why not Cash and Carry? .................................................................................................................... 5

Metro “Cash & Carry” ......................................................................................................................... 5

Location: .............................................................................................................................................. 6

Typical characteristics of C&C operations .......................................................................................... 6

Eligibility of Customers ....................................................................................................................... 6

Entry ................................................................................................................................................ 7

Layout .............................................................................................................................................. 7

Various Sections of the Store as pointed out in the layout are explained as follows: ....................... 8

Promotional Display ........................................................................................................................ 8

Grocery section ............................................................................................................................... 9

Frozen Foods section ...................................................................................................................... 9

Fresh fish and Sea Foods Section .................................................................................................... 9

Meat Section ................................................................................................................................. 10

Oil Section ..................................................................................................................................... 10

Kitchenware section ...................................................................................................................... 10

Mobile Counter ............................................................................................................................. 11

Home Textiles ............................................................................................................................... 11

Home Electronics .......................................................................................................................... 11

Office ware .................................................................................................................................... 11

Detergents and Cleaning Materials .............................................................................................. 11

Health and Beauty ......................................................................................................................... 11

Operational Insights into Cash & Carry ............................................................................................. 11

Convenience .................................................................................................................................. 11

The Big Head ................................................................................................................................. 12

Stock Receiving Section ................................................................................................................. 12

Warehouses .................................................................................................................................. 12

Category management.................................................................................................................. 12

Free Gift counter ........................................................................................................................... 12

Clearance Counter ........................................................................................................................ 13

Stock Replenishment .................................................................................................................... 13


Working Hours & Peak Load Days ................................................................................................. 13

Active Retailing: Putting the right products in the path of the customer .................................... 13

Key Account Management ............................................................................................................ 14

Value Chain ....................................................................................................................................... 14

For Grocery Products .................................................................................................................... 14

FMCG Products ............................................................................................................................. 15

How Companies give Value to Cash & Carry stores .......................................................................... 15

Schemes in Cash & Carry .................................................................................................................. 16

Customer Segments for Cash & Carry Stores ................................................................................... 18

Typical Sales Process – Seven Shopper steps ................................................................................... 20

Value to a Shopper from Cash & Carry ............................................................................................. 21

Criteria for Stocking Brands at “Cash & Carry” ................................................................................. 22

Role of Private Labels ........................................................................................................................ 23

Business from the perspective of Cash & Carry store owners .......................................................... 24

Positives ........................................................................................................................................ 24

Negatives ....................................................................................................................................... 24

Advantages and Disadvantages ........................................................................................................ 25

Advantages .................................................................................................................................... 25

Disadvantages ............................................................................................................................... 26

Cash and Carry vis-à-vis Wholesale................................................................................................... 27

Impulse Purchases in Cash & Carry & Wholesale formats ................................................................ 28

Cash and Carry: ............................................................................................................................. 28

Wholesale: .................................................................................................................................... 28

Competitors ...................................................................................................................................... 29

How Metro can deal with competition ............................................................................................. 29

Product Side: ................................................................................................................................. 29

Business Side: ................................................................................................................................ 29

Service Side: .................................................................................................................................. 29

Appendices ........................................................................................................................................ 30

Exhibit 1: Eligibility Requirements for Metro Membership .......................................................... 30

Exhibit 2: Sample of Pamphlets at Metro ..................................................................................... 31

_Toc302317415Exhibit 3: Sample of Metro-Mail ......................................................................... 35


Cash and Carry Retail Format

Cash and carry is a form of trade in which goods are sold from a wholesale warehouse operated

either on:

A self-service basis

Basis of samples (with the customer

selecting from specimen articles using a

manual or computerized ordering system

but not serving himself)

Combination of the two

Here, the customers (retailers, professional users,

caterers, institutional buyers, etc.) settle the

invoice on the spot in cash (typically), and in most

cases carry the goods away themselves.

Cash and Carry Retail Format in India

Currently, modern retail forms less than 9% of the total retail sales in India. The remaining sales

occur through the general trade channel which consists of multiple small and large stores competing

against each other for dominance over a small catchment area. The cash and Carry store format

aims at being a central location where cross-category needs of such small store owners can be

fulfilled in a modern-retail like environment.

The cash and carry store format acts as a replacement to the distributor-wholesaler layer in the

typical FMCG chain (in Indian context) as shown below:

Customer

Retailer

Wholesaler

Distributor

C&FA

Company

Customer

Retailer

Cash And Carry

C&FA

Company


By leveraging its size and consequent bargaining power, a C&C store can provide a higher discount as

compared to whole sale by eliminating one layer in the distribution chain. The prospects for this

form of retail are quite positive in the Indian market, especially in the FMCG space, due to:

Unregulated Markets leading to information asymmetry

Lack of sophistication in the normal wholesale sales process

Need of regular and automated supply to large houses

The potential for C&C trade format in Indian retail space is expected to cross $140 Billion by the end

of the decade according to PricewaterhouseCoopers estimates1. This has led to the entry of many

players in this segment. Notable names include Metro AG, Bharti-Walmart, Carrefour and Reliance

Retail.

All the players have big plans to dominate the game as outlined below

Metro:

Currently has 6 operational stores.

Plans to open more than 50 C&C stores2 in the next 5 years

Bharti-Walmart:

One store operational in Amritsar.

Plans to open 10-15 more stores3 by end of 2015.

Reliance Retail:

To operationalize 1 store in Ahmedabad by end of 2011 and two more stores by end of

2012.

Carrefour:

One store operational in Delhi.

Plans to open more stores in this decade (exact number undisclosed).

1 Source: Business Standard, May 19 2011, http://www.business-standard.com/taketwo/news/carrefour-

standing-atcrossroads/436060/ 2 Source: Mint, Feb 9 2011, http://www.livemint.com/2011/02/09222206/Metro-to-open-50-wholesale-

sto.html 3 Source: Franchise India, http://news.franchiseindia.com/retail/Bharti-Wal-Mart-unveils-its-expansion-plan-

for-the-next-seven-years-355/

http://www.business-standard.com/taketwo/news/carrefour-standing-atcrossroads/436060/

http://www.business-standard.com/taketwo/news/carrefour-standing-atcrossroads/436060/

http://www.livemint.com/2011/02/09222206/Metro-to-open-50-wholesale-sto.html

http://www.livemint.com/2011/02/09222206/Metro-to-open-50-wholesale-sto.html

http://news.franchiseindia.com/retail/Bharti-Wal-Mart-unveils-its-expansion-plan-for-the-next-seven-years-355/

http://news.franchiseindia.com/retail/Bharti-Wal-Mart-unveils-its-expansion-plan-for-the-next-seven-years-355/


Why Cash and Carry?

Typical reasons for a retailer to prefer the C&C trade format are:

Wide category range: All needs can be fulfilled at one place

Ambience

High discounts at base level

Loyalty schemes adding up to the overall discounts

Option of delivery services (at a cost)

Transparency and uniformity in pricing

Freedom from pushy salespeople of companies.

No need to deal with multiple company representatives

No Bargaining

Assurance of genuine products

Unaided shopping: Freedom to check out products

available in the market before buying

Why not Cash and Carry?

Unaided shopping: Can lead to confusion

Delivery services are at extra cost

Locational disadvantage for most shoppers

Stringent rules for membership in loyalty schemes

Narrow product and SKU range. Won’t source the other SKUs like

wholesalers do

Lack of freedom to buy lesser units than minimum bundle offered.

Typically, cannot be used for replenishment

Lack of availability of long-tail products

Lack of return policy like that of wholesalers

Metro “Cash & Carry”

METRO Cash & Carry is different from B2C retail chains (such as Walmart, Carrefour or Tesco) in that

its business concept is targeted towards professional customers rather than end consumers. METRO

Cash & Carry serves to registered customers only. Core customer groups are hotels, restaurants,

caterers, traders and other business professionals.

http://en.wikipedia.org/w/index.php?title=B2C&action=edit&redlink=1

http://en.wikipedia.org/wiki/Walmart

http://en.wikipedia.org/wiki/Carrefour

http://en.wikipedia.org/wiki/Tesco


With around 700 stores in 30 countries, Metro is the internationally

leading self-service wholesaler with sales of around € 31 billion in

2010.

It operates across Europe and in some countries of Asia and

Northern Africa. It is the largest sales division of the German trade and retail giant METRO AG.

METRO GROUP was quick to recognise the potential of the Indian market. It was the first

international retailing company to set up operations on the subcontinent – and is now making a

significant contribution to the development and expansion of the country’s retail infrastructure. In

addition, the company supports the domestic economy: almost all the goods it sells are sourced

from local suppliers.

Location:

The store is located on LBS road

between Kanjurmarg and Bhandup in a

mall called Neptune Magneto Mall.

The construction of mall is complete

although there are no other

functioning outlets apart from Metro

Cash & Carry. The location is slightly

inconvenient and Metro seems to be

the anchor store for the mall. The

timings are from 9AM to 9PM (initially

timings were 6AM to 10PM)

Typical characteristics of C&C operations

Eligibility of Customers

Some Cash & Carry stores are open to everyone including B2C segment while others are restricted to

only business people. The stores operating in a B2B segment have fixed criteria for their customers

including Partnership firm, trusts, clinics, educational institutions etc.

http://en.wikipedia.org/wiki/METRO_AG


For instance, details of the eligibility requirements for Metro

are outlined in Exhibit 1

Anyone eligible can get the membership for the store after due

verification by the store officials. Till the verification is done,

the person is given a temporary membership card which after

due inspection is turned into a permanent photo-id

membership card.

There are no obligations in terms of minimum sales for a

period for membership. If anyone other than member wishes

to shop on behalf of the member, he is required to get a duly

signed authority letter from the member.

Entry

Strict security norms are followed at every Cash & Carry store. After depositing the bags at entry

counter, shopper has to show the METRO membership Card in order to get in.

Pamphlets of latest schemes are given to shoppers as they enter.

For example at the Metro, Mumbai, a single page pamphlet wishing shoppers a happy ‘Ramzan’,

gave details of some of the latest schemes. All of the schemes in the pamphlet were on Foods and

Grocery products. Refer to Exhibit 2 for a copy of the pamphlet.

Along with the pamphlet a copy of some catalogues are also given to the customers as they enter

the store. For instance Metro has a bi-weekly catalogue called Metro Mail which is given to the

shoppers. It lists all products across various categories. Refer to Exhibit 3 for a glimpse of Metro

Mail.

Layout

The cash-and-carry concept is based around self-service and bulk buying. The layout of the stores is

very convenient and easy to navigate through to enable customers a great shopping experience. All

the sections are named and marked clearly for easy identification and everything product is

strategically placed at a particular location based on shopper convenience.

For instance the layout of Metro “Cash & Carry” in Mumbai, India looks like:

http://en.wikipedia.org/wiki/Cash_and_carry_(wholesale)


Various Sections of the Store as pointed out in the layout are explained as

follows:

Promotional Display

Like other organised retailing formats, Cash & Carry stores offer a wide opportunity to brands to lure

customers through eye-catching display. These are placed at peculiar positions to attract the

attention of the customer like at the entrance or the end of the corridors.

For instance at Metro, as soon as we entered, we observed there was promotional standee of

Horlicks gold which is the latest variant launched by Horlicks. GSK was paying around INR 50,000 for

this space.


Similarly End Cap displays at Metro were populated by National

Brands to catch customer attention. Each end cap had a prominent

display space dedicated to generally 2 products. These spaces were

paid for by the companies.

Grocery section

As soon as shopper enters, he comes across Grocery section. The

initial part of the section contains regular vegetables like onions,

tomatoes etc. There were sacks of 25 kgs for Potatoes and onions

along with loose cartons. The pulses and dry fruit section follows

which has some private label items by Metro under the brand name

Aro which is positioned as a value for money brand.

Frozen Foods section

Adjacent to Grocery section is the frozen foods section, which has a

wide variety. Frozen foods section had around 5-6 brands, starting from Kwality walls at the left,

followed by Amul, and 2-3 other brands. The minimum SKU size was family pack of 250ml.

Frozen foods section also had ready to cook items such as chicken nuggets and even frozen sweets

which included Kaju Katli and Motichoor laddus.

End cap section here for reserved for Private Labels by Metro, which included green peas and Ice

cream under Horeka brand name, which is specifically targeted at hotel segment.

A comparison of prices of some brands in green peas is shown in following table:

Brand Price

Horecka (Private Label) 99

125

Safal 85

It was interesting to note that private label was not the lowest price brand in this case.

Fresh fish and Sea Foods Section

This section was separated from the main area by a sliding door and was maintained at a lower

temperature than the overall store.


The section had a wide variety of fishes comparable to a local fish market,

but was stored in a way which could be perceived as much more hygienic

in heaps of ice. The store had separate water fed ice manufacturing

machine, which kept on generating ice which was then manually put

around the fishes.

The arrangements were impressive such that the room was free of the

typical ‘fish smell’. A display case had dried fishes. Another value added

service which was offered free to shoppers was that the fish were cleaned

and cut properly.

Meat Section

Meat section was connected to the fish section. It had wide variety to

offer as well. Right from complete frozen chickens, chicken wings,

legs,and boneless chicken at much lower rates. For example, boneless

chicken was for INR 185 per kg, whereas in a typical retail store

general rate is more than INR 250. There were customized packs for

Kababs as well.

Even mutton section had a wide variety.

Oil Section

This section was in the middle aisle and was a bit congested with huge cartons of cooking oils. There

were racks around 15-20 feet tall. Up to 5-6 feet were used for display while the upper section was

used for storage.

Kitchenware section

Kitchenware section had

prominently 3-4 brands.

There was another private label

here called H ware, which

complemented the Horeka brand in

grocery section. Under H ware,

kitchen utensils were launched as of

now.

Kitchenware section also had crockery and other plastic items.


Mobile Counter

There was a small counter for mobile with a few models of Samsung, but overall the category looked

neglected.

Home Textiles

This section had limited variety. The main focus was on menswear while ladies wear and children

wear had very limited offerings. In Menswear there were up to 50% off offers on MRP on brands

such as Belmonte for T-Shirts. There was a provision of trial room as well.

Home Electronics

The section had very limited variety. TVs had only two brands Samsung and Onida. There were three

to four brands of Irons. Overall this section had limited product categories as well as brands.

Office ware

Office ware had collections of pens, files etc. Amongst branded pens, Linc was a prominent brand

apart from the private label Sigma. Parker brand was discontinued due to poor offtake.

Detergents and Cleaning Materials

These categories had the highest variety with all the prominent brands making an appearance.

Health and Beauty

This section had Skin care, Oral care and Hair care products. These sections along with detergents

had smaller SKUs as well.

Typical planogram for Oral Care category is depicted in the following figure:

Even though the category had smaller SKUs, in many cases 3-6 smaller SKUs were bundled together.

Operational Insights into Cash & Carry

Convenience

Clearly demarcated section, properly segmented products help customers find the products with

ease. Another important thing is the aisles which are around 10 feet wide for large shopping carts to

move without any hustle bustle. Also staff is there for assisting customers.

Pepsodent Meswak Closeup Colgate Others


The Big Head

The long tail is generally missing. The basic business model is to have fast moving brands with

limited variety. Most of the product categories had 4 to 6 major brands, only exception being

personal care FMCG category which had all leading brands. However, compared to Supermarkets,

the niche brands are generally not there in Cash & Carry stores.

Stock Receiving Section

The area where fresh stock is received is generally connected to the store

for easy and quick loading to the warehouse. For instance in case of

Metro the Receiving section is at the back of store right after Meat

section.

Warehouses

For most Cash and Carry stores, there is one main warehouse which is either

adjacent to the main store or in the same building but on a different floor.

In addition to this, these stores have the top shelf on each aisle reserved for

keeping stock which is used on everyday basis for stock replenishment.

Category management

Each category had clearly defined place as per the planograms. Planograms

of most of the sections were left to category managers. However, compared

to a store such as Big Bazaar or star bazaar, it seemed that there was lesser

focus from the store side on the way products were displayed.

Free Gift counter

Most Cash & Carry stores have a separate counter for Free gifts that are offered with certain goods

to avoid malpractices like stealing, redundancy and even confusion. As in case of Metro it is shown in

the layout that the free gift counter is near the billing counter so that the customer can collect their

free gifts while paying the bill.


Clearance Counter

Cash & Carry stores are known for serving the best quality products and thus any item which is

nearing expiry or is not selling is put on a special counter called the clearance counter and it is sold

at discounted price to clear the old stock.

Stock Replenishment

As the demand is by businesses and not individual customers, so the sale

every day is huge in terms of volumes, thus stock replenishment at the

shelves is done almost every day. In case any product is not in stock, it is

mandatory to put “Stock Not Available” label to inform the customer.

Regular monitoring is done to maintain strict adherence to this.

Working Hours & Peak Load Days

The working hours for a typical “Cash & Carry” store are 9 am to 9 pm. Peak load is generally before

the working hours of the most retailers, wholesalers but customers keep pouring in depending on

their work timings & requirements.

Maximum load is on Saturday, Sunday and Monday.

Active Retailing: Putting the right products in the path of the customer

Even in case of placing sections in the store, there is proper planning that goes into designing the

layout of the store. For instance at Metro, The grocery section is right at the beginning which is in

line with the active retailing principal of putting fresh produce closer to entrance.


Key Account Management

There are some key accounts for Cash & Carry stores which are given special services as they have

higher business & strategic importance for the stores. For instance Metro provides services like

taking orders telephonically as well and arranging for transport. These accounts are managed by

Marketing team of Metro. An example could be Taj Hotel which regularly buys grocery.

Value Chain

For Grocery Products

This value chain is actually preferred by farmers, because the only costs incurred by the farmers are

the costs of production. Since the C&C operator approaches a farmer on his field, he saves the effort

of grading and the cost of transportation.

Farmer

Cash & Carry

Shopper


FMCG Products

Even FMCG companies treat C&C as a key account and the account is handled directly by company

executives.

How Companies give Value to Cash & Carry stores

By virtue of the large scale of “Cash & Carry” stores, they are a major account for most National

Brands. The huge volumes these stores drive and the growing share of modern retailing is increasing

the strategic importance of these “Cash & Carry” stores for various national brands. Thus Companies

give Value to incentivize purchase by these stores:

Company

C & F A

Cash & Carry

Shopper


Schemes in Cash & Carry

All the products have some scheme running. All the products are sold below MRP giving

considerable price benefit to the shopper.

Also end cap displays are used for special product displays and schemes. As per the floor manager,

around 60% of shoppers made impulse purchases on seeing special schemes at end cap.

Examples of Schemes:

Scheme on Tropicana Juices:

1 Liter Pack

MRP : INR 80

Offer Price: INR 64 (incl.VAT)

Margin for Shopper : 25%

Continued Purchase

• Standard 8-10% margin on MRP

• Extra discount based on volumes (say if the order for all outlets across country order centrally)

Achievement Bonus

• Monthly turnover discounts

• Quarterly turnover discounts

1- 2% Power SKU discount

• Special Discount or free gifts with the special items

• Promotion Display revenue


Scheme on Lotte Choco Pie:

Scheme on Private Labels:

Horeca Select Green Peas (5Kg)

MRP: INR 500


Margin for Shopper : 38%

336G

MRP: INR 120


Margin for Shopper : 27.66%


Customer Segments for Cash & Carry Stores

Type of

Shopper

Medical Stores

Retailers Wholesalers Hotels,

Restaurants,

Caterers

Supermarkets

Typical

Characteristics

Particular about

things they buy,

highly aware

Wants a

reliable

source for

getting his

stock

regularly at

cheapest

prices

Believes his

high volumes

makes him

an important

customer and

thus

demands

extra services

Varied

requirements

for

Professional

Cooking

Assume huge

bargaining

power due to

brand and

volume power

Primary

Benefit

Sought

Essential goods at

low prices

Convenience,

low prices,

transparency

Lowest

Prices,

One-stop

shop

Decent

quality,

lowest prices

Location

advantage,

reduces

transportation

costs

Frequency of

Visit

Usually once in 2

weeks

Depending

on size of

operations,

varies from

twice in a

week - once

in 2 weeks

Once a

month

Once a week

or once in two

weeks

-

Margins Vs.

Brand

Brand as customers

are very particular

about such products

Margin is

primary but

Brand is also

equally

important as

non-

demanded

brands will

hold the

capital

Margin is

primary but

Brand is also

equally

important as

non-

demanded

brands will

hold the

capital

Margin drives

purchase

(Brand not

important as

customer

doesn’t sees

the brand)

Margin as they

provide the

complete

shopping

experience to

customers and

thus can

override brand

preference


As we can see that for a majority of the customers, Brand is either

insignificant or a secondary consideration in purchase decision, a

typical “Cash & Carry” format keeps 3-4 brands in each category.

The brands which have a higher off take which drives their ROI

higher as the turnover of cash is quicker.

Shopping

Mission

Fill-in Fill-in Stock- Up Fill- in/ Stock -

Up

Stock- Up

Nature of

Relationship

Transactional Transactional In between

Transactional

and a close

aide

Huge Volumes

for Large

Hotels

Make them

important

accounts

Key Accounts

and thus closer

relationship

Influencing

Tactics

Quality Products,

Well-Known Brands,

Lower priced than

competitors

Delivery

Service,

Credit, Ready

Stock

Availability

Credit,

lowest Prices

Wide variety

of sauces,

spices,

Relationship

management

as trust not

brands drive

relationship

Relationship

Management,

Time

Synchronization

of delivery as

modern retail

operates on JIT


Typical Sales Process – Seven Shopper steps

A typical Sales Process at a “Cash and Carry” format is very similar across customer segments. Most

of the customers at the “Cash and Carry” store are interested in a specified list of items that they

intend to buy and are pre-decided on that as per the requirements of their business. Some the

customers even place the order telephonically and ask for delivery. The typical sales Process as

described in terms of the seven shopper steps for both sale at the store or the telephonic sale are

described below:

Shopper gets the billing done, collects any free gifts or discounts applicable

Shopper Calls at the Store

Shopper reads out the list of items he wants to buy

Shopper asks the customer service agent for new offerings & schemes

Seeing

Noting

Scanning

Finding

Focusing

Choosing

Buying

Shopper reaches the Store

Shopper searches for the items on his list

Shopper checks out new offerings & schemes while picking out the items from shopping list

Shopper finds the product and places them in the cart

Customer Service Agent gets the items ordered

Shopper tallies the products from the cart with that on the list

----

Shopper makes payments by Cash or Debit Card

Shopper gets the delivery of goods at the specified address

Shopper makes payment by Cash

Sales Process at the Store Telephonic Sales Process


Value to a Shopper from Cash & Carry

The Shopper at Cash & Carry stores expects some services in addition to basic goods purchase which

incentivize the purchase and even induce loyalty. The “Cash & Carry”, though relatively new in India

and have virtually no competition are still offering number of value benefits to the shopper to

attract more and more customers by making them migrate to modern retailing. Such services are to

re-iterate and strengthen store's partnership with its customers. Typical benefits offered by a “Cash

& Carry” store to the shoppers are:

Product Related Price Related Service Related Value-Added Service

Genuine

Products

Ready

availability of

order size

Lowest price-

higher margins

Volume based

Discounts

Credit (through

citi bank debit

cards)

Loyalty

discounts

Convenient to

scan and shop

Transparent

and uniform

pricing

No bargaining

required

Friendly staff

for assistance

Delivery of goods

(for Metro @

0.75% of sale)

Telephone order

for customers with

order value above

a certain amount

(For Metro, at

above Rs. 1 lakh)

Free Gifts with

Certain items

In case of Metro, for instance, they offer a Loyalty program

called “Bandhan” which offers a range of privileges and value

added services to METRO Bandhan members. There are two

levels of membership - silver and gold, depending on the

customer's engagement level with METRO - purchase amounts,

frequency of purchases and the range of products purchased.


To qualify for the Silver membership, a customer has to purchase twice a month, a minimum of 50

unique articles per year, amounting to an overall spend of Rs 1.5 lakh per year.

To achieve the Gold membership, the customer has to purchase once per week and also ensure that

his purchase consists of 100 unique articles per year, with an overall spend of Rs 6 lakhs per year.

The Bonus Program offers monetary benefits in such that a Silver customer can earn up to one per

cent on purchases whereas a Gold Customer can earn up to two per cent on purchases.

Criteria for Stocking Brands at “Cash & Carry”

From self-service wholesale stores up to hypermarkets

chains, Cash & Carry stores tries to cover all consumer

requirements. With the strong retail brands of their sales

divisions Cash & Carry stores provide powerful evidence of

their comprehensive trading competence.

Since Cash & Carry stores intend to serve businesses, brands

play an important role in building up a relationship of trust

with quality seeking professional customers. So the primary

consideration before stocking any brand is the customer

preference. Any brand that sells well and quick is welcome at

“Cash & Carry” stores. Margins is a secondary consideration for

“Cash & Carry” as even a low margin brand with a shorter turnover cycle can give better returns than

a high margin brand with longer turnover cycle.

Most of the Cash & Carry stores have a defined period for which the brand is kept under observation

and a certain upper limit beyond which if a brand doesn’t sell, they remove it from the shelves and

from their portfolio.

For instance: METRO Cash & Carry stores before choosing a brand stocks it for three months,

observes sales pattern and after six months if the sales fail to pick up, the brand is no more in their

offer basket.

This enables them to offer each of the products in large volumes at highly competitive prices and

meet highest standards in freshness, quality and service.

This is guaranteed not only by well-known local and international brands, but also by the top METRO

Cash & Carry own brands.


Role of Private Labels

Private label products or services are typically those manufactured or provided by one company for

offer under another company's brand. Private label goods and services are available in a wide range

of industries from food to cosmetics to web hosting. They are often positioned as lower cost

alternatives to regional, national or international brands, although recently some private label

brands have been positioned as "premium" brands to compete with existing "name" brands.

Cash & Carry formats do offer a number of private labels as well. As they have direct interface with

suppliers and have multiple vendors, they can source the products and launch private brands which

drive higher margins for them. They have extended the concept of private label to identify a brand

with a store, a concept known as the store brand. This can be a far more profitable business than

selling nationally advertised brands.

For instance, Metro has 5 private lables on offer which presently contribute around 10% of sales but

with increasing reach and awareness of Cash & Carry stores, this share is set to grow phenomenally.

Always a good Deal: This is a value for money private label brand. It is

sold on a price entry level, below the benchmark competition and

comprises 700 reliable food and non-food products.

Professional Kitchen Ware: This brand is meant for hotels,

restaurants and caterers as the name suggests (Ho- hotels,

Re- Restaurants, Ca- caterers) and has 1,500 food and

non-food products for professional kitchen use.

For every guest: H-Line is an assortment of 350 non-food and “near food” products

that offer solutions for the hotel and restaurant sector. “The professional look and

performance of H-Line offers a realistic alternative to franchising,” This brand has

kitchen utensils, crockery as primary offering.

For all your office needs: Sigma is a line of 600 office supplies that serves

all customer groups.

It “stands for high-value products and thus addresses independent food

traders as well as service stations with 700 items.

http://en.wikipedia.org/wiki/Product_(business)

http://en.wikipedia.org/wiki/Service_(economics)

http://en.wikipedia.org/wiki/Brand


Business from the perspective of Cash & Carry store owners

Positives

Self- managed with complete ownership

More profitable than a retailer business

Recently, new rules have been issued by the Indian ministry which states that the sales to

‘Group companies’ should not exceed 25 per cent of a cash and carry company’s turnover

and should only be for ‘Internal use’. Such steps make sure that front-end retail will not

come within the garb of the wholesale business.

In India, for wholesale cash and carry model, 100 per cent FDI is permitted.

Respect and recognition within the locality and community for

their reliability

Customers arrange for their own transport and pay in cash and

not on credit terms unlike the classical wholesalers

Negatives

Low profit margins - If the sales is less, then cash gets blocked

and hence profitability comes down.

Income is highly dependent on the volume of sales per month.

Lesser eyeballs, footfalls and high decibel visibility compared to the neighborhood formats

and hypermarkets.

Failure of earlier players like Shoprite, a South African retail major in late 2000.

Modern retail still constitutes only about 10-12% of the $350 billion retail market in which

cash and carry formats is a relatively small fraction.

Given the B2B nature of the business, observers and players believe that cash & carry

formats operating in India have adopted a more 'wait for business to come' attitude rather

than a 'go out and acquire business' one.


Advantages and Disadvantages

Advantages

For the customer

Unlike traditional wholesale, the concept of Cash and Carry is based

on self-service. Customers come to the store, pick up their

merchandise and carry it away themselves. This has the following

advantages.

Time - Metro Cash & Carry offers a wide assortment of

goods – 18000 different food and non-food items, providing

for one-stop-shopping and thus allowing the customer to

save time otherwise spent on purchasing from a variety of

sources.

Financing - Given the permanent availability of goods in the

store through its computerized goods management system, the customer can always

purchase goods he needs and is able to store and finance them in the short term. He need

not tie up his money in stock that does not sell quickly. Thus despite the principle of cash

payment, cash & carry largely takes over the function of financing and stockholding on

behalf of its customers.

Convenience - Because of the extended business hours (From 6:00 am to 10:00 pm seven

days a week), a customer can do his shopping at a convenient time, on any day.

Attractive Pricing - Metro Cash & Carry is able to offer far more attractive prices than

traditional wholesale due to the following reasons:

o Bulk quantities - The customers buy in bulk, and so does Cash & Carry. Its global

purchasing power allows it to achieve significant economies of scale.

o Lean operation cost - Based on almost 40 years of global experience, Cash and Carry

has optimized its logistics and goods management systems to minimize operation

costs. The savings are then passed on to the customer.

Parking Facilities - Hassle free parking space for around 450 two wheelers & 270 four

wheelers is provided for the customers.

For Metro Cash and Carry

Cash and carry is the only format wherein 100 per cent FDI is allowed.


This wholesale business model allows Metro Cash & Carry to control the quality parameters

from ‘farm to plate’ and lets it create a segment of quality conscious customers.

For the Economy

Metro Cash and Carry is a close partner of the local economy. The company has 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. Currently METRO is preparing a special

Kirana training. The aim is to help them enhance their business by educating them in terms of pricing

policy, goods storage, assortment as well as marketing issues and microfinance.

Disadvantages

For the Customer

Home Delivery Charge - Metro Cash and Carry levies

home delivery charges for its customers (A charge of Rs.

8 for a billing of Rs. 1000/-)

Minimum Order - It allows on bulk purchase and

imposes a minimum purchase level of Rs 1000/-

No Credit - It does not offer credit facility that is

provided by many traditional wholesalers.

Exclusivity – It is exclusive; open only to registered

customers

Limited brands and SKUs – Metro Cash and Carry stocks only the top 5-6 brands in every

category except personal care. There is also a skew towards larger SKUs in the case of offers,

which may not be very favourable for small Kirana owners.

For Metro Cash & Carry

Back-end Logistics - In India, there is no large logistical chain; there are 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. The real challenge at the backend is thus the aggregation of a

disaggregated production system coupled with poor infrastructure.

Trained Manpower - India does not have trained manpower. The cash and carry outlet

requires people with knowledge of the concept, people who know that it is different from

the normal retail.


Real Estate Prices - Compared to traditional wholesale, Metro Cash and Carry requires a

much larger area which is difficult to obtain with the prohibitive real estate prices in the

cities where its operations are targeted. Leasing the land or premises could be a solution.

Cash and Carry vis-à-vis Wholesale

Comparison with other retail formats is not done due to completely different target customer and

business model.

The major differences between C&C format and wholesale format can be shown as below:

Cash & Carry Wholesale

Size of store Large

Typically larger than 50,000 sq.

feet4

Small

Typically smaller than 1000 sq. feet

Shopping Type Unaided Aided

Typical Shopper Retailer Retailer

End-customer

Accounts Mix of normal(small size) and key

accounts

Normal(small size) accounts

Category Range Broad Narrow

Product Range

(In an offered category)

Narrow Broad

Discounts Comparable

SKU’s at store level Large, Granular

Necessary to purchase a minimum

number of units of an item

Small, Fine

Any quantity can be purchased

Returns Not allowed Allowed (In most cases)

Quality Assurance Not given at store level Given at store level

Membership

Requirement

Required Not Required

Loyalty Schemes Yes No (In most cases)

Value Added Services Ambience

Parking

Delivery

Arrangement to source required

4 Reliance is to enter the C&C space with the smallest C&C store at Ahmedabad with an initial space of 50,000

sq. feet


Variety

Order by phone/internet

but unavailable SKUs

Order by phone

Impulse Purchases in Cash & Carry & Wholesale formats

Both the competing formats are conducive to impulse purchases in different ways:

Cash and Carry:

Here, the shopper is exposed to a large number of products across categories. This leads to purchase

of products on impulse due to:

Product missed while creating shopping list

New category noticed

New product noticed due to in-store promotions

High cash discounts compelling the user to stock

products that may be big-head for Metro but long-tail

for the shopper

Higher discounts on purchases above a certain level. This

leads to random addition of items to the purchase

basket just to reach the given figure

Wholesale:

The initiation of impulse purchase occurs primarily through suggestions of the store owner.

Typically, the owner informs the shopper of:

New products

New SKUs

New discount schemes/ off-invoice discounts

Combo-offers

The shopper may listen to his advice and but the new item or chose to ignore.


Competitors

Cash and Carry Space Non Cash and Carry Space

Metro AG

Reliance

Bharti-Walmart

Carrefour

Big-Bazaar

Wholesale Channel

Company Owner Channel

How Metro can deal with competition

Product Side:

Increase products in each category

Stock semi-long-tail products in addition to big-head products

Localized product approach. Stock products from smaller players but in demand at a local

level

Business Side:

More stores at more locations leading to

locational advantage

Increase store size

Foray into multi-brand retail once FDI is

allowed

Stronger tie-ups with vendors and logistics

services providers

Stronger KAM practices

Stronger size-based negotiations with

vendors

Service Side:

Packaging and delivery

Convenient planograms

Handle categories on its own rather than delegating it to category managers


Appendices

Exhibit 1: Eligibility Requirements for Metro Membership


Exhibit 2: Sample of Pamphlets at Metro





Exhibit 3: Sample of Metro-Mail




Sources:

1. Interaction with Metro Executives

2. http://www.ehow.com/about_6617232_cash-carry-retail_.html

3. http://articles.economictimes.indiatimes.com/2010-10-13/news/27601770_1_formats-

french-retail-giant-retail-trade/2

4. http://www.rediff.com/business/report/ril-looks-to-re-enter-cash-and-carry/20110606.htm

5. http://retail.franchiseindia.com/articles/Retail-Operations/Merchandise-

Management/Cash-n-Carry-looking-up-229/

6. http://www.financialexpress.com/news/walmart-may-replicate-cash-and-carry-model-in-

india/241169/3

7. Carrefour at Crossroads, Business Standard, May 19 2011

8. Indian retail market: Changing with the changing times, Deloitte Industry Report, August 2010

9. Herb Sorenson, Inside the mind of the shopper

10. Mathew Joesph and Nirupama Soundararaja (2009), Retail in India, ICRIER,

Academic Foundation, New Delhi

http://www.ehow.com/about_6617232_cash-carry-retail_.html

http://articles.economictimes.indiatimes.com/2010-10-13/news/27601770_1_formats-french-retail-giant-retail-trade/2

http://articles.economictimes.indiatimes.com/2010-10-13/news/27601770_1_formats-french-retail-giant-retail-trade/2

http://www.rediff.com/business/report/ril-looks-to-re-enter-cash-and-carry/20110606.htm

http://retail.franchiseindia.com/articles/Retail-Operations/Merchandise-Management/Cash-n-Carry-looking-up-229/

http://retail.franchiseindia.com/articles/Retail-Operations/Merchandise-Management/Cash-n-Carry-looking-up-229/

http://www.financialexpress.com/news/walmart-may-replicate-cash-and-carry-model-in-india/241169/3

http://www.financialexpress.com/news/walmart-may-replicate-cash-and-carry-model-in-india/241169/3

Documents

Retail_Cash & Carry _Group3