Cash and carry is a membership based retail store selling limited SKUs in bulk packs. Cash and carry has a membership requirement. Customers are usually members of the club and pay an annual fee in order to continue their membership. It is not like any other retail outlet where in one can go and buy items. It is limited to only certain members like wholesalers, semi-wholesalers and retailers. For example, METRO Cash and Carry India & Wal-Mart Cash & Carry, which are well-known to most people, are a good example of this format. Some of the recent entrants into this format are Carrefour and Reliance Retail.
Cash and carry models are able to sell at lower prices because of the basic, no frills format of the stores, volume of sales, low cost location and lower inventory carrying costs. Cash and Carry offers private labels as well as branded goods. The first Cash & Carry format store was opened in India by METRO in 2003. Most of the Indian companies want to tie-up with the International companies, and vice-versa, as 100% FDI is allowed in this format. This helps the Indian companies to learn the international best practices and technologies. The German company, Metro was the first one to enter the country. If you want to shop in Metro, you need to have a sales tax number with you and it is meant basically for retailers and distributors and not for consumers. And, you cannot shop for less than Rs 1,000 and, in product offerings, you cannot buy two to three, you have to buy six or more pieces of one particular product. Currently, Metro is present in six cities, present in all the Agricultural Produce Marketing Committee (APMC) licensed states.
Indian retailers are interested in venturing with foreign retailers as we do not have capability to manage the operations for a cash and carry format. We do not have the expertise as developed countries do. Cash and carry format requires a strong backend support. Foreign players are looking for joint ventures with local retailers because they are interested in MBOs or retail outlet, apart from cash and carry format. Having an Indian partner gives them local support and they enjoy the chance to capitalize on a network, which is already established by the local player.
Most of the purchases for the hotels business happen through a network of purchase managers, who have long-term relationship with, let’s say, 200 suppliers. It is very unorganized. It is a challenge to convert that habit to a unified buying structure in large hotels. Now Metro supplies the Taj and Oberoi on a national basis. This means those guys had to change the entire system of purchasing and orient themselves to one particular supplier. It takes some time to get convinced of these changes. There are now dedicated supply-chains to these hotel chains from the Cash & Carry stores.
The Cash & Carry format in India is still in its infancy and will face a lot of changes. They need to develop new channels, and optimize their supply chains for more profits. Also, it is to be seen on how the Cash & Carry format business will be affected with the government keen to allow FDI so that the global giants can set their shops in the streets.