Reliance Retail. (Representative image)
The retail business in India is increasingly consolidating in favour of large entities like Reliance Retail Ventures Ltd which, with its acquisition of Metro Cash and Carry India Pvt. Ltd, has taken another step in expanding its footprint.
The subsidiary of Reliance Industries Ltd is already India’s largest brick-and-mortar retailer with over 16,600 stores, and has a strong wholesale unit.
Backed by a massive warehousing and distribution network, Reliance Retail’s rapid expansion has not only disrupted established entities in the organized retail market but also the business models of distributors.
The purchase of Metro Cash and Carry, the Indian unit of German wholesale retailer Metro AG, by the Isha Ambani company for Rs 2,850 crore, has to be seen in this context.
The purchase will not just help Reliance Retail deepen its operations and physical store footprint in India, it will also help the company access a wide network of outlets and retail and institutional buyers, and give it a strong supply channel.
The retail giant’s ability to better serve consumers and small merchants by leveraging synergies and efficiencies across supply chain networks, technology platforms and sourcing capabilities will get a boost.
Reliance will also benefit from the aggressive omnichannel strategy and digitization of kirana stores which Metro India had recently undertaken in terms of offering Business-to-Business (B2B) customers modern fixtures, Point-of-Sale (PoS) terminals and marketing tools.
“The acquisition of Metro India aligns with our new commerce strategy of building a unique model of shared prosperity through active collaboration with small merchants and enterprises,” Isha Ambani said in a statement. “Metro India is a pioneer and key player in the Indian B2B market and has built a solid multi-channel platform delivering strong customer experience.”
Reliance Retail’s purchase of Metro India may also be the shot in the arm that kirana store operators and Small and Medium Enterprises need in the face of tough competition from Quick Commerce, E-Commerce and organized retailers.
“Reliance Retail will get a further foothold in the kirana business – Metro India reaches 3 million plus B2B customers, of which 1 million are frequent users – and so its foray into FMCG will get a boost,” said Abhneesh Roy, Executive Director of Institutional Equities at Nuvama Group.
He said the price-to-sales ratio seems fair given that cash and carry is a low-margin business and even other multinationals such as Carrefour of France had exited India.
Harminder Sahni, founder and Managing Director of Wazir Advisors, said Metro had built an excellent business over the years in India.
“With this acquisition, Reliance Industries will be able to further consolidate its position in the Indian retail market,” he said, adding that the acquisition would be value-accretive for Reliance Retail stakeholders.
“On many parameters Metro was by far the best organised wholesaler in India. The customer base, supplier network and well-trained team as well as being a well-oiled international standard process-driven organisation is a valuable asset and will give Reliance Retail a definite edge in the wholesale market,” Sahni said.
Metro has been in India since 2003.
In FY19, it achieved a 405 percent increase in net profit at Rs 217.6 crore, swinging from a loss of Rs 71.27 crore in FY18.
In filings to the Registrar of Companies accessed via business intelligence platform Tofler, the company said revenue from operations in FY22 went up to Rs 6,989.29 crore from Rs 6,503.24 crore in the previous fiscal. In FY20, its revenue was Rs 6,915.32 crore.
In FY22, its net loss narrowed to Rs 48.29 crore from Rs 68.55 crore in FY21. Metro India had sales of Rs 7,700 crore, its best performance in India, in the financial year ended September 2022. Despite the fact that on a standalone basis, Metro Cash and Carry recovered to its pre-COVID numbers in terms of its revenues, its financial performance came under scrutiny when Metro AG began to search for a buyer for the unit last year.
Roy said Metro India was a growing and profitable wholesale business and would help boost Reliance Retail with access to its supplier network and global best practices.
“However, what remains to be seen now is how Reliance – which already has a 20 percent market share in the organised food and grocery business – deals with any overlap with its own network, which currently operates 31 large format stores across 21 cities,” he said, referring to the fact that just this month, Reliance Retail has venture into the packaged consumer products business with the launch of the brand ‘Independence’ for staples, processed foods, beverages and other daily essentials, rivalling the likes of ITC, Tata Consumer Products, Patanjali and Adani Wilmar.
Disclaimer: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.
