Retail firms are making a cautious entry into the cash-and-carry, or wholesale trading, format, betting on a huge demand base of unorganised independent stores, and in a bid to lure foreign investments. Nearly 80 percent of India’s $450-billion retail sector is made up of small family-run shops, according to consulting firm A T Kearney. This represents a huge business opportunity for cash-and-carry ventures.
“There are roughly about 12 million small retail outlets, or kiranas, as we call them in the country, and that is the customer base they are trying to target,” said Anil Rajpal, vice-president consumer goods and retail at Technopak Consultants. “Also, the existing distribution models held by FMCG companies have been able to saturate only the metro cities, and as far as tier-2 and tier-3 cities are concerned there is ample scope for penetration levels to increase,” he said.
Indiabulls’ retail arm Store One Retail last month approved a venture into wholesale trading, while global investor TPG, which reportedly put in a bid for debt-hit Vishal Retail plans to convert it into a cash-and-carry.
Future group, which runs India’s biggest retailer, Pantaloon Retail, is said to be in tie-up talks with French retailer Carrefour, which plans to start operations in India by setting up cash-and-carry outlets.
Aditya Birla Retail, part of the Aditya Birla Group, with large back-end facilities such as warehouses, distribution centres and supply chains has also lined up similar plans. “We are ready with the necessary infrastructure. In fact, we have more than 600,000 square feet of back-end space which can be used for a cash-and-carry venture,” said Thomas Varghese, chief executive officer of Aditya Birla Retail.
India allows foreign retailers to enter retail through franchise arrangements with local players, and are allowed to own up to 51 percent in single-brand retail, while 100 percent ownership is permitted in cash-and-carry ventures.
“A lot of these Indian firms are looking for foreign investments and so they are converting into this format. It will be hard for them to operate as a single entity and compete with foreign retailers,” said a Mumbai-based consultant who did not wish to be named.
Channel Conflict
However, supply-chain bottlenecks and the low-margin nature of the business are a dampener, industry participants said. “Pricing is the key because if a kirana has to buy from a cash-and-carry they will only do so if they get a better deal, else they will procure from FMCG companies,” said Anand Raghuraman, partner and director at Boston Consulting Group.
Have you read?:
- Metro Cash & Carry Opens 7th Outlet In India
- Cash-&-carry gets ready for national rollout
- Reliance Retail To Enter Cash-And-Carry Biz Through 3 Outlets
- Texas Pacific Group likely to buy Vishal Retail, convert it to Cash & Carry
- Carrefour’s first cash-and-carry outlet to open in 2-3 months
- Metro Cash & Carry to open centers in Punjab
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