Food for thought

Published : Jul 13, 2007 00:00 IST

Is Metro Cash & Carry an answer to customers' demand for quality products at low prices or a system to monopolise the retail trade?

RAVI SHARMA in Bangalore

Ever since Metro Cash & Carry, the bulk-buying multinational wholesaler who targets the business and professional buyer rather than the end consumer, started its India operations in Bangalore in 2003, opinion has been divided on its presence in the country. Though queues to its two distribution centres in the city may have abated, the demand to shop at Metro Cash & Carry is still considerable.

This is something that infuriates Ramesh Chandra Lahoti, president of the Bangalore Wholesale Foodgrains and Pulses Merchants Association. He claims that the multinational, which is the sales division of the German-headquartered Metro Group, has been selling products even below the distributor's price, and contrary to its licence conditions, to the end consumer. "Metro's sales, especially of meat, fish and spirits, have affected retail stores," he says. "Many people have secured Metro cards though they don't buy for their business. And retail sales are rampant with Metro allowing another person to accompany the card holder."

Latest figures indicate that Metro Cash & Carry has a membership of over a lakh in Bangalore, its main customers being hoteliers and restaurateurs (including bars), small food traders and retailers, and small business establishments. Besides the two Bangalore distribution centres (set up with an initial investment of Rs.176 crore), it has an outlet in Hyderabad (with a membership of over 80,000), and is opening centres in Mumbai and Kolkata before the end of the year. According to G.C. Byra Reddy, general secretary of the farmers' organisation Karnataka Prantha Raitha Sangha, with the setting up of Metro and other retail chains such as Big Bazaar, Reliance, Food World and Spencers, there has been a decline in transactions at petty shops, neighbourhood groceries and by push-cart vendors.

Even as critics continue to accuse it of promoting consumerism, entering the retail segment through the backdoor and, most importantly, undercutting prices in a bid to wipe out and then monopolise the consumer market, Metro defends itself by explaining that all it does is to offer attractive prices by efficient handling and reduction of the supply chain. Explains Manish Bhargava, its spokesperson in India: "Our model is supplying quality products to the retail trade at low prices. In India, 45 per cent of the cost of throughput produced by small manufacturers - only slightly less when produced by big players like Hindustan Unilever [until recently Hindustan Lever], Colgate Palmolive, Dabur and so on - is on account of the inefficient and fragmented supply chain. The supply chain, which is designed to reach the neighbourhood `kirana' store, involves products being taken from the manufacturing unit to the clearing and forwarding agent, then to the distributor, and then the wholesaler and the semi-wholesaler before reaching the retailer. Everyone on the supply chain doing almost the same job adds absolutely no value, only costs. The maximum retail price (MRP) takes this inefficiency into consideration, providing money to each link. For Metro, which cuts costs by stripping and improving this supply chain, the MRP has no meaning. We offer products at our operating price."

Bhargava denies that Metro has conveniently changed from being a B2B (business to business) operator to becoming a B2C (business to consumer) distributor. "Only if you have a Metro card can you enter our outlets, and if you can't enter you can't buy," he says. "And to get a card you have to have a business. We are not in the retail trade. Anyway, the Indian retail market is not mature enough to absorb the Metro Group's retail format."

Metro Cash & Carry's biggest handicap in Bangalore (unlike in Andhra Pradesh) is that it is not allowed to trade in agricultural produce, including fruits and vegetables (F&V), from outside the Agricultural Produce Marketing Committee (APMC) yards. It cannot buy produce directly from the farmer. Though successive governments in Karnataka have indicated that they will amend the APMC Act allowing it to trade in 100-odd goods listed in the Act, it has not happened much to the relief of Metro's critics, who feel that once this happens Metro will go in for contract farming, even dictating what the farmer should grow, how much he should, and at what price he should sell. Says Lahoti: "If players such as Metro are allowed to trade in agricultural commodities, traders will be wiped out. If they really want to help farmers let them set up private market yards in rural areas 200 km from the city."

Admitting the importance of the F&V trade, Bhargava says that farmers will be able to give quality products if Metro is allowed to deal with them directly. "Traders are worried because there will be a cut in their profits. The APMC yards and grain merchants will have to modernise. Otherwise they will perish. You have to make the supply chain efficient and offer better prices and market discoveries to the farmer."

While F&V is off bounds, Metro is already doing substantial business in fish, meat and dairy products, having set up a landing platform in Mangalore and working directly with fish and meat suppliers. It sells over four tonnes of fish and eight tonnes of meat every day. It has also tied up with 45,000 sheep farmers from Karnataka and Andhra Pradesh.

So, is Metro an answer to customers' demand for quality products at the lowest possible price or a system that is masquerading as championing the farmer's and professional businessman's cause only to wipe out eventually the friendly neighbourhood store and monopolise the retail trade? According to V.J.K. Nair, the all India vice-president of the Centre for Indian Trade Unions (CITU), organised retail chains such as Metro Cash & Carry and Reliance Fresh are but manifestations of a "capitalist development, replacing individually operating proprietary firms, or proprietor-appointed employee establishments, by large business conglomerates".

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