Indian retailers are fast moving into the cash & carry business model

Though it has been another disappointing budget for Indian retailers, they have not given up on their expansion plans.


A striking number of Indian retail firms has recently started to realign their store formats to the 'cash & carry' model.


Although in the early stages, the shift signals a changing trend in the organised retail space. The cash & carry model is a B2B ( business to business) mode.







Picture this: Vishal Retail announced the launch of its first hypermarket last week, after reports of global private investment firm TPG taking a stake in it. Subhiksha Trading Services Ltd (of which Azim Premji's Zash Investments owns 10 per cent) too re- opened last month as a cash & carry outlet. Other Indian retailers like Reliance Retail, Aditya Birla Retail's More and Future Group's hypermarket Big Bazaar, too, are planning to enter the cash & carry business.


Ambeek Khemka, former president, Vishal Retail, said, ''Only those Indian retailers that are expecting foreign direct investment (FDI) into their business, are converting to the cash & carry mode, else they will not be able to get further investments.'' Indian financial institutions are not lending to the retail sector anymore, he added. ''Hence, a large number of retailers have no option but to go for cash & carry business to facilitate investments,'' he said. Khemka said it would be hard for Indian retailers operating as a single entity to compete with foreign retailers.


''The cash & carry model is making retailers less location-oriented and more catchment-oriented,'' observed Debashish Mukherjee, principal at consulting firm A T Kearney.


''Retailers were placing higher bets on catchment area as opposed to individual locations,'' Mukherjee noted. For example, people do not mind travelling around 25-30 km to a Wal-Mart located in Ludhiana. A lot of these stores will, however, be opened in small cities.


The differentiating aspect lies on the pricing point. As a cash and carry model, the retailer can drop the product price to almost the wholesale price level. ''Moreover, the number of clients a B2B operator transacts with is normally much more than as a B2C (business to customers) retailer,'' added Mukherjee.


India's cash & carry retail segment is also seeing a higher level of participation from the foreign segment. French major Carrefour had announced its intentions to enter India this year.


Wal-Mart, Tesco and Metro are other foreign players operating in the space currently.


Thomas Varghese, CEO, Aditya Birla Retail, said the company is ready with the infrastructure and back- end support. ''We have a backend space of around 60,000 sq ft currently,'' he said.


Raghu Pillai, president ( retail, strategy and operations), Reliance Retail said it had no immediate plans to enter the cash & carry format. ''It is a little premature to talk about Reliance’s plans to enter the cash & carry model,'' he said. However, he agreed that the B2B model was a part of its initial agenda.


Reproduced From Mail Today. Copyright 2010. MTNPL. All rights reserved.