Home--News
Western Grocer Modernizes Passage to India's Markets
By ERIC BELLMAN and CECILIE ROHWEDDER
Wall Street Journal
November 28, 2007
To open stores in India, German retailer Metro AG first had to teach
farmers like N. Madhu to stop piling vegetables on the ground after
picking them -- the bacteria from the dirt can slash the shelf life.
Today, Mr. Madhu's gourds go directly from the vine to the plastic
crates Metro gave him.
"They taught me if I stop using sacks and give them uniform sizes
they will pay me the best price," said Mr. Madhu one recent morning
as he unloaded crates of green, foot-long gourds from his small family
farm at the Metro distribution center in Hyderabad.
Farmers like Mr. Madhu are a critical part of operating in India for
Metro, the world's fourth-largest food retailer measured in sales.
Metro is the first Western retailer to tackle a fundamental problem
facing Wal-Mart Stores Inc. and other retailers trying to enter India
today: how to stock their huge supercenter stores with produce that
must travel India's rough roads, in outdated trucks, and that come
from farmers, shepherds and fishermen who use techniques from a century
ago. For all the promise that India's retail industry holds -- it
is estimated today at $300 billion and growing -- it requires focusing
as much on managing its supply chain as it does on attracting shoppers.
Metro's advantage over the others may appear slight. Since entering
India in 2003, it has opened just three wholesale markets -- its customers
are small retailers, restaurants and hotels -- with another two scheduled
to open next year. But it has a huge advantage in infrastructure --
it has set up one of the first supply chains transporting refrigerated
goods across India.
"Stores are just the tip of the iceberg -- 90% of the work is under
water," says Thomas Hübner, chief executive officer of Metro Cash
& Carry International, the division that runs the company's India
operations. "People must be aware that setting up a business in India
can take 10 to 15 years."
Wal-Mart, which used its supply-chain expertise as a critical weapon
against rivals when expanding in the U.S., is teaming up with an Indian
partner, Bharti Enterprises Ltd. "Our wholesale cash-and-carry venture
will invest in setting up an efficient supply chain that will link
farmers and small manufacturers directly to retailers, thereby maximizing
value for farmers and manufacturers on the one end and retailers on
the other," said a Wal-Mart spokesman.
India's Reliance Industries Ltd. plans to open thousands of stores
nationwide over the next five years and is also building a vast network
of suppliers.
Foreign retailers aren't yet allowed to own stores in India. They
have to come in through franchise agreements with Indian companies
or as wholesalers. They can also own logistics companies to supply
to Indian retailers.
"You have to start from scratch," says Ira Kalish, director of consumer
business for Deloitte Research LP in Los Angeles, who has studied
the Indian consumer market. "You start with an inefficient supply
chain and gradually invest in improvements."
India's traditional way of transporting vegetables can be seen in
the southern city of Hyderabad. While the city is nicknamed Cyberabad
for its high-tech companies, its wholesale vegetable market is decidedly
low-tech. Large open trucks, piled high with loose onions and carrots
and sacks of green chilies sit roasting in the midday sun as they
are unloaded onto the backs of long lines of wiry men. The produce
is weighed and then piled high in unrefrigerated warehouses. Vegetable
traders use bags of squash as chairs and beds.
The produce is only about halfway on its journey to the consumer,
and it is already looking sad. Large distributors buy from the market
and sell to midsize retailers, who then sell to the mom-and-pop shops
and cart pushers that make up the bulk of the Indian grocery trade.
The chain can involve up to seven intermediaries.
Economists estimate that up to 40% of produce in India is ruined or
lost. Metro is working to get that figure to 7% at most. Metro says
its supply chain for fruit and vegetables is too new to reliably say
how much progress the company has made in fighting waste.
Metro, based in Düsseldorf, has experience building supply chains
to stock its 2,400 retail and wholesale stores in 31 countries. Wal-Mart,
by comparison, operates in half as many markets. Metro, which posted
$85.3 billion in sales last year, is under pressure to succeed in
India because, like Wal-Mart, it increasingly relies on international
operations for growth.
"It's a way of securing our future," says Metro's Mr. Hübner. "At
some point, our business in India and China will be bigger than that
in Europe. My successor, or that person's successor, might be Indian
or Chinese."
When Metro first opened a shop in Bangalore four years ago, locals
didn't eat much fish because seafood didn't make it inland fresh enough
to be edible. So, Metro taught fishing crews how to cool fish by immediately
gutting and stuffing them with shaved ice. Before, few fishermen had
ice and most used -- and reused -- chunks of ice that damaged the
fish. The company now sells up to five tons of seafood (between 80
and 120 types of fish) in the Bangalore region every day.
Metro managers visited shepherds to show them how to vaccinate their
herds and treat the animals for sicknesses like bluetongue and foot-and-mouth
disease. Metro imported British sheep to breed with their Indian counterparts,
which tend to be too skinny for Metro's meat rack.
Metro also had straightforward lessons for vegetable farmers: Don't
water spinach the night before it is picked; don't place cucumbers
on the ground after you pick them; pack fruit and vegetables in crates
instead of burlap bags; and don't store onions in warm warehouses
or they will sprout and spoil.
Metro cut out middlemen by sending its own truck drivers to collect
directly from some farmers, in trucks refrigerated to between 42 and
46 degrees. It had to make sure its suppliers didn't turn off the
refrigeration in their trucks to save gasoline, a common practice
among Indian drivers. To check, Metro started measuring ice cream
from the center of the package to make sure there had been no melting
along the way.
"In a place without any cooling systems at all, a truck cooled to
exactly [42 degrees] looks like a thing from the moon," says Mr. Hübner.
Such efforts to build a modern supply chain have met some resistance
from middlemen who are used to transporting produce and now seeing
their jobs eliminated under Metro's plan. To protect the middlemen
and local small retailers, some Indian states have banned foreign
companies from selling agricultural products. Mr. Hübner says he expects
this ban to be lifted soon because the company has gone through lengthy
administrative steps with local authorities.
Metro's efforts have attracted restaurant owners who say they shop
there because it has everything in one place and is rarely out of
stock. They used to buy vegetables, rice, meat, and drinks from many
small suppliers that often run out.
Amit Vohra, a chef for the ITC Kakatiya Hotel in Hyderabad, has been
able to put seafood -- until recently a rarity in this landlocked
city -- on his menu because he knows Metro will consistently bring
in fresh pomfret, shrimp and lobster from the coast.
"Now we have been able to have a week of seafood specials," he said,
as he looked behind the gills of a fish packed in shaved ice at Metro's
Hyderabad center. "The big lobster was the star."
FAIR USE NOTICE. This document contains copyrighted material whose use has not been specifically authorized by the copyright owner. India Resource Center is making this article available in our efforts to advance the understanding of corporate accountability, human rights, labor rights, social and environmental justice issues. We believe that this constitutes a 'fair use' of the copyrighted material as provided for in section 107 of the U.S. Copyright Law. If you wish to use this copyrighted material for purposes of your own that go beyond 'fair use,' you must obtain permission from the copyright owner.
|