The Rise of Cash and Carry Wholesaling in India

The rise of Cash and Carry Wholesaling in India May 3rd, 2011 by Sameer Mathur 1 Comments by Sameer Mathur and Cara Martow (see PPT slides summarizing this article)

Retail giants from the west are keen on entering the Indian market. This is hardly surprising, given that India accounts for over a sixth of the world’s population accompanied by increasing levels of economic development. Yet, given the Indian government’s extensive regulations limiting Foreign Direct Investments (FDI), entering this lucrative market has proven to be an extremely challenging endeavor for foreign retailers. This situation has forced global companies such as Metro and Wal-Mart to get creative. The Cash and Carry wholesale business model is becoming an unconventional means of entering this emerging market. With the Indian government imposing a FDI cap of 51% in single brand retail, Wal-Mart and other retailers are unable to conventionally enter this market. These crippling restrictions do not apply to wholesalers, and therefore global retailers are using “Cash and Carry” wholesaling as an indirect way to enter India’s high-growth market. The Cash and Carry model is different from traditional wholesaling in that it involves paying at the time of the transaction, and does not include any delivery services. It caters to traders, small local shops, as well as larger businesses. It allows them to shop for a great variety of commodities and intermediate goods, while still paying competitive wholesale prices. The current retail market in India is mainly composed of kirana “mom and pop” type stores, which occupy close to 98% of the industry. The local kirana owners do not benefit from economies of scale, and have a limited selection of products. Moreover, the many stages of the supply chain also cause a hike in prices, mostly due to the many levels of commission at each chain link. With Indiasupporting such a huge portion of the global population, a wholesaler can help get rid of these high distribution inefficiencies. Cash and Carry wholesalers not only create higher margins for the kirana shopkeepers, but also indirectly lead to lower prices for the end consumers. This presents a win-win scenario for the economy.

India offers lucrative opportunities to these global retailers, with a population of approximately 1,155,347,678 and an ever-rising GDP. The 2006 Global Retail Development Index even named India as the most appealing country worldwide to enter the trade and retail market.

The presence of Cash and Carry operations in India is currently minimal, but it is rapidly growing. Metrowas first to enter the Indian market in 2003, and they now operate six cash and carry stores. Wal-Mart entered the market in 2007 by forming a joint venture with Bharti Enterprises to create “Best Price Modern Wholesale”, and now has five units in operation. Lastly, Booker Group decided to enter without a joint venture in 2009, but plans to expand by franchising.

Best Price Modern Wholesale has adapted their merchandise to meet the “dayto-day needs of restaurant owners, hoteliers, caterers, fruit and vegetable resellers, kiranas, other retail store owners, offices and institutions”. They even make a point to source approximately 90% of its merchandise locally. These new Cash and Carry operations stimulate the Indian economy, reduce waste, and make the supply chain more efficient. Roughly 58% of Metro’s sales and 70% of Wal-Mart’s sales go directly to small traders, with the remaining going to other Indian businesses such as restaurants, hotels, and offices.

In summary, the influx of Cash and Carry operations has minimized the middlemen in the supply chain, allowing cheaper goods for wholesalers and retailers. With forecasters predicting that India has the potential to be forty times larger by 2050, there is abundant scope for continued expansion and development.