Metro AG Selling Its Indian Unit | Why Is Every Big Company Eyeing It?

Dev Gupta Dev Gupta
Jun 29, 2022 7 min read
Metro AG Selling Its Indian Unit | Why Is Every Big Company Eyeing It?

German retailer Metro AG which is trying to sell its Indian cash-and-carry operations for around $1.5-1.75 billion has caught the attention of a lot of big companies.

Companies like Reliance Retail, Amazon, TATA Group, Avenue Supermarts โ€” which runs the DMart chain, Thailand's Charoen Pokphand (CP) Group, Swiggy, Lulu Group, and PE fund Samara Capital are in the race to buy the Indian unit of Metro AG.

But, why are these companies eyeing Metro AG? What does Metro AG exactly do? To find answers to these questions, keep reading this article till the end.

Metro AG- About
Why Metro AG Wants to Exit the Indian Market?
Companies Wanting to Buy Metro AG's Indian Unit
Why Big Companies Are Eyeing Metro AG?

Metro AG- About

Relative Market Share of Metro Cash and Carry India from FY17 to FY20
Relative Market Share of Metro Cash and Carry India from FY17 to FY20

Metro AG is a German international specialist in wholesale and food retail which has made its footprints in 34 countries. The headquarters of this company is in Dรผsseldorf, Germany. The company operates under the cash and carry wholesale business model.

In the cash and carry model, retailers, caterers, hotels, restaurants and other special businesses purchase the goods from a wholesale warehouse and pay the invoice on the spot in cash. Customers have to arrange the transport of the goods themselves.

The Indian subsidiary of Metro was established in 2003 when the Indian government allowed 100% foreign direct investment in wholesale trade on a cash and carry business model.

The company has a chain of 31 cash-and-carry stores in India under the brand, Metro Wholesale. Only business customers can buy goods from these wholesale centres.

Main Products and Services of Metro AG

Metro Cash and Carry India provides 7,000 products to its business customers across various categories like fruits & vegetables, dairy, frozen and bakery products, general grocery, health and beauty products, media and electronics, confectionery, detergents and cleaning supplies, household goods and apparel - all under one warehouse at wholesale prices.

Target Audience of Metro AG

On Metroโ€™s official website, the company has mentioned that its core customers in the Indian market include small retailers and Kirana stores, SMEs, and all types of offices, companies and institutions. The company also targets HoReCa- Hotels, Restaurants and Caterers.

Why Metro AG Wants to Exit the Indian Market?

Metro AG India
Metro AG India

Metro AG generated a whopping revenue of $898 million in FY21 (Oct-Sept) and is likely to close the current fiscal year with more than $1 billion in revenues with an EBITDA growth of 30-40%. Last fiscal the EBITDA growth was 50%.

Even after earning so much revenue, why does the company want to exit the Indian market? The reason is increased competition. When Metro AG entered the Indian market in 2013, there were not a lot of players. But, now the situation has completely changed. Metro AG is facing tough competition from Reliance and Udaan.

To fight the competitors the company has to spend $300 million to stay relevant in the market in the short term. But, the parent company METRO is not ready to spend this huge amount to beat its competitors.

Although tough competition is not the only reason for the company to surrender their Indian unit.

โ€œSelling below cost and free delivery of goods are the issues. Most competitors are operating at negative 20-25% EBITDA,โ€ said an industry veteran who doesn't want his name mentioned in the article.
โ€œAt Metro, we regularly assess our international portfolio, such as our market position in the respective country, the life cycle of our operations, and the growth potential of our business. This is a general approach and normal business applied to all countries, including India,โ€ said Gerd Koslowski, the companyโ€™s global director of corporate communications.

Metro wants a profitable business in India which is not possible in the near future and that's why the company is selling its Indian unit.

Last year the company exited Japan and Myanmar due to increased competition. The company has also closed its business in Russia due to its war with Ukraine.

The company has appointed JP Morgan and Goldman Sachs, the most respected investment banks, to find a buyer for their business.


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Companies Wanting to Buy Metro AG's Indian Unit

In the beginning, the following companies were in the race of buying Metro AG:

  • Reliance Retail
  • Amazon
  • TATA Group
  • Avenue Supermarts โ€” which runs the DMart chain
  • Thailand's Charoen Pokphand (CP) Group
  • Swiggy
  • Lulu Group
  • PE fund Samara Capital
  • Walmart - Flipkart
  • PremjiInvest

But, now Flipkart-Walmart, DMart and Amazon have opted out of this race.

So, now the fight for Metro AG is between Reliance Retail, TATA Group, Charoen Pokphand (CP) Group, Swiggy and PremjiInvest.


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Why Big Companies Are Eyeing Metro AG?

Metro AG Selling Its Indian Unit
Metro AG Selling Its Indian Unit

According to Statista, the Indian retail market in 2020 was worth 800 billion USD. By 2026, this figure will reach 1.7 trillion USD. The Indian quick commerce market will reach $5 billion by 2025.

Since Metro AG already has a huge chain of warehouses, wholesalers and retailers, this gives these companies a big chance to tap into the booming retail and quick commerce market. This is the very reason why all of the big companies are fighting to buy the Metro AG.

The company which is trying to disrupt the retail and quick commerce segment is Reliance. The company has already made huge efforts since 2021 to build a large number of wholesale centres for food and grocery, apparel, electronics, and medicines. Reliance is also integrating numerous small shops into its business strategy. Mukesh Ambani has said that they are planning to onboard more than 10 million merchant partners over the next three years.

The main goal of the company is to supply a range of products to consumers through its eCommerce platform JioMart. Reliance already has a huge chain of warehouses and if they acquire Metro AG they would achieve this goal really fast.

But, let's look at the bigger picture. Reliance is trying to build its own ecosystem. The company wants Indians to use its services from the morning to the night. Consumers can buy products from their eCommerce platform, JioMart using Jioโ€™s mobile or WiFi networks, watch movies on Jio Cinema and pay the money via Jio wallet. Like this, the customers will stay in their eco-system for a long period of time.

Another company that wants to leverage the retail and quick commerce segment is Swiggy. The company wants to expand its current food delivery business model to the quick commerce segment. By acquiring Metro AG the company wants to accelerate Instamartโ€™s growth.

โ€œSwiggy has evinced interest in the acquisition, and a potential deal would enable Metro Cash & Carry's wholesale stores to feed Swiggyโ€™s Instamart delivery model,โ€ one of the executives said.
โ€œThe idea is to create a hub-and-spoke model where Metro stores will supply to Instamart stores, which could be delivery-only or even stores where consumers can walk in.โ€

Conclusion

All the companies know the bright future of the retail business and quick commerce segment. The companies know that if they acquire Metro AG, they would be able to capture the market quickly. Now, it's very tough to predict which company will buy Metro AG but, this race would be quite interesting to watch.

Big players in the quick commerce segment like Zomato and Swiggy are not making huge profits. But, if the companies build a smart business model then the quick commerce field can help generate huge profits for any company.

FAQs

What is a cash and carry store?

In cash and carry stores customers buy products from warehouses and settle the invoice in cash and carry the goods with them. Customers have to arrange the transport of the goods themselves. Usually, these customers are retailers, caterers, hotels and restaurants.

Is Metro cash and carry closing in India?

Yes, Metro cash and carry is exiting the Indian market by selling its Indian operations for $1.5-1.75 billion.

How many Metro wholesale stores are there in India?

Metro has 31 wholesale stores in India.

Is Metro an Indian brand?

Metro AG is a German international specialist in wholesale and food retail which has made its footprints in 34 countries. The headquarters of this company is in Dรผsseldorf, Germany. The company operates under the cash and carry wholesale business model.

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