DÜSSELDORF — Metro AG, Germany’s largest retailer, is looking primarily to China and India for growth over the next five years.
Metro AG, Germany’s largest retailer, is looking primarily to China and India for growth over the next five years.
In an interview in New Delhi, chief executive officer Eckhard Cordes said that China and India along with Russia will be the top three markets for the retailer in coming years. Metro currently has 50 stores in China, 49 of which are Metro Cash and Carry outlets, while one is a Media Saturn electronics store that debuted in Shanghai in November.
In India Metro has only six wholesale Cash and Carry facilities, although it first entered the market in 2003. But the company plans to open as many as 50 of the outlets over the next five years, while adding 50 more stores in China.
"Our target of 50 stores by 2015 won’t be the end; we definitely see a potential of a three-digit number for our stores here," remarked Cordes. "I think the market potential for cash-and-carry business in India, if you do it right, is huge."
The wholesale cash-and-carry format is presently the most ideal for foreign retailers hoping to expand in India, since the government allows foreign ownership of such enterprises. Moreover, the format is well geared to servicing India’s estimated 12 million small mom-and-pop stores, many of which are in undeveloped rural areas.
The Ministry of Consumer Affairs has recently signaled willingness to allow 49% foreign ownership of multibrand retailers, holding out the promise of wider foreign penetration in the future.
Cordes acknowledged that Metro has been slow to expand its presence in India, explaining that the company had not been able to develop a viable business model. The global financial crisis in 2008 then forced the retailer to scale back its international investments.
"Now we are sort of restarted to accelerate our investments," he said. "In the years to come we will not distribute our investments for store openings evenly across the globe; there will be a clear focus on Asia plus comparable countries.”
In addition to opening its first consumer electronics outlet in China last year, Metro debuted a new concept store in Hyderabad, India. At about 38,000 square feet, it is 30% smaller than Metro’s previous outlets in the country.
Metro’s Asian/African business currently makes up a tiny part of its overall business, with 2010 sales of 2.7 billion euros — just 4% of its top line of 67.3 billion euros. However, the region showed the strongest growth by far of any of Metro’s territorial markets, with sales expanding 17.1% (12.7% in local currencies).
Together, China and India are predicted to account for more than 91% of retail sales in Asia this year, and their share is expected to grow to 92% by 2014, according to the BMI India Retail Report. China at present clearly represents the greater immediate opportunity, by virtue of its much larger organized retail industry, larger middle class and the much greater access afforded to foreign retailers.
China is already one of the most lucrative and fastest-growing retail markets in the world. Retail sales hit $1.8 trillion in 2009, up 15.5% from 2008 — despite the impact of the global financial crisis. Disposable income and standards of living, at least in major cities, are rising.
Organized retail in India, by contrast, was only 5% of the total market in 2008, although its share is growing rapidly and is expected to total between 14% and 18% by 2015, according to McKinsey & Co. Last year India was ranked as the third most attractive nation for retail investment by A.T. Kearny in its ninth annual Global Retail Development Index. The consulting firm estimates that the Indian retail market this year will total about $410 billion, growing to $535 million by 2013.