RIL will give us scale, can negotiate better with suppliers: METRO MD & CEO

The B2B model that METRO Cash and Carry is focussed on has a lot of opportunities in the Indian market, says METRO Cash & Carry MD & CEO Arvind Mediratta

In an exclusive interaction, Managing Director and Chief Executive Officer of METRO Cash & Carry Arvind Mediratta spoke to Nivedita Mookerji about what led to Reliance Retail acquiring the India business of German chain Metro AG in a Rs 2,800-crore deal in December, prospects and challenges in retail operations, and the consumer mood. Edited excerpts:       

What is the transition like?

We are in the middle of the transition. The deal has not been completed yet. We are waiting for regulatory approvals. The deal should conclude by the end of this financial year.

What’s your impression of moving from a multinational to an Indian conglomerate?

The B2B model that METRO Cash and Carry is focussed on has a lot of opportunities in the Indian market. And to expand from 31 stores to, say, 100-plus, we need investment, we need capex. Reliance has a robust understanding of the market and has deep pockets to invest in this business and grow it multiple times. There are lots of synergies that are possible with the Reliance group. We will get scale which will help us negotiate better terms of trade with suppliers. They are very strong in technology with Jio Platforms. Add to that, our understanding and capability in the B2B space, and we have a very powerful combination.

After the deal concludes, who will lead the team? Will you remain in your role and what happens to the employees of METRO Cash & Carry?

I cannot comment on the future structure of the organisation. But from my conversation with Reliance, they are very keen to retain all the talent we have. This is the message we are sharing with all the people in the head office, as well as in stores. That we are a profitable business, nobody else in the B2B space has been able to operate a profitable business. People need to be reassured of their future.

So far multi-brand retail chains, such as Walmart, Tesco and Carrefour, have faced challenges in India due to the regulatory environment. But METRO was focused on B2B. So what went wrong with METRO Cash & Carry?

Nothing went wrong. Everything went right. We have been focussed on B2B since day one when we set up the first store in India (Bengaluru) in 2003. It took us almost 15-16 years to become profitable. We became profitable for the first time in 2018 and have remained so despite competition increasing manifold in this space, including people with PE (private equity) money doing price war and selling goods below cost.

Why was then a decision taken to sell the Indian business of METRO AG? 

In the lifecycle of any business, once you have established a robust operation, you need to expand. We believe $ 1 billion in revenue and 31 stores are not doing justice to the opportunity in the B2B space. As is logical, we believed we could do a lot more in the $600-700-billion market. We can be 10 times bigger but for that, you need investment in physical stores, supply chain, and digital infrastructure. We have had several rounds of discussion with the parent company and put up a blueprint on what’s possible in India, and what investment is required over the next four-five years. After the Russia-Ukraine war -- both critical markets for METRO AG -- the political landscape had changed. The parent company was not focused on Asia anyway. They exited China a couple of years ago and Vietnam eight-nine years ago… They decided to focus their resources on Europe… That was the time when we decided to look at potential partners and Reliance emerged as a frontrunner.

What’s it like for a foreign company to do business in India?

India offers a major growth runway for the next 15 to 20 years.      

What about the regulatory challenges on the way?

Yes, there are regulatory challenges. They are not at the central level. Sometimes, it’s about the interpretation of policy. It varies from one official to another at the state and even at the city level…

METRO Cash & Carry has maintained it’s not interested in multi-brand retail. But do you believe there should be greater clarity on FDI in multi-brand?

The government should be clear on the multi-brand FDI policy. It will be good for the end consumer. Also, companies won’t have to depend on different interpretations of the policy. Even some of the Indian groups have deep pockets and they can also play the predatory pricing game. There are a lot of Indian start-ups flush with PE money, they are burning a lot of cash and doing predatory pricing which is hurting the interest of small businesses. Ultimately, it’s about having a level-playing field between large and small businesses, foreign and Indian. So why not have a clear FDI policy?

Finally, what’s your take on the consumer mood based on buying patterns?

There’s some softness in demand starting from January. People are not opening their purse strings as liberally as we would want them to do. Layoffs in the IT sector have played a role, and so has inflation. But I’m optimistic that the overall India growth story is intact. I believe in the next five to six months, sometime around the festival season, demand will again pick up.