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BW Businessworld

Booking Growth

Ecommerce firms are now trying to stock a larger proportion of inventory closer to their customers’ locations for efficiency and to improve the quality of products upon delivery

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Time was when the kirana shop owner had to go hopping from one local wholesalers to another to replenish the various goods in his shop. And there was no guarantee the wholesalers would have all the SKUs every time he visited them. And even for those kiranas that were serviced by salesmen, the merchandise would be delivered with a certain lag.

But not any longer, at least for kiranas in many parts of the country. The growth and expansion of the ‘cash & carry’ whole- sale retail business in the country in recent years, with its focus on providing convenience and speedy delivery to customers, has changed the game for kiranas.

And more recently, for itself.

Cash & carry was among the handful of ventures that scripted success during the pandemic on the back of strong demand from categories such as fast moving consumer goods (Resilient India Inc, BW, July 9) and ecommerce (Propelled By The Pandemic, BW, August 8). After all, efficient supply- chain management along with robust cash & carry and warehousing businesses are critical to the success of the two categories.

To recap, cash & carry is a wholesale trading business whereby goods are paid for in full at the time of purchase and taken away by the purchaser. In this business, the seller does not sell prod- ucts directly to consumers but to local stores, retailers, hotels, and compa- nies. These entities then sell the prod- ucts to the consumers. A thriving cash & carry ecosystem signifies heightened economic activities and increased purchasing power of the people, and is fuelled by actual demand, say experts.

Take Metro Cash & Carry India, part of Metro AG, the world’s fourth- largest retailer, for instance. For 2018-19, the company, the first wholesale retailer to set up shop in India in 2003, posted a healthy 10 per cent growth in net sales at Rs 6,755 crore, up from Rs 6,140 crore, as per its annual report. As on date, Metro operates 27 wholesale stores or ‘dis- tribution centres’, and is on track to add two dozen more.

Rival Walmart India, which operates 28 Best Price cash & carry out- lets, also saw an 11 per cent increase in its revenue to Rs 4,065 crore in FY20, as per reports. However, it was acquired by Flipkart recently, which has now launched Flipkart Wholesale, a new digital market- place. The move is aimed at an aggressive entry in the food and grocery segment by Flipkart, which was acquired in 2018 by Walmart Inc.

Kalyan Krishnamurthy, CEO, Flipkart Group, says, “With the launch of Flipkart Wholesale, we will now extend our capabilities across technology, logistics and finance to small businesses across the country. The acquisition of Walmart India adds a strong talent pool with deep expertise in the wholesale business that will strengthen our position to address the needs of kiranas and MSMEs uniquely.” Flipkart Group is also expecting a fund infusion of $1.2 billion led by parent Walmart, along with a group of existing shareholders, for its ecommerce business.

These activities are indicative of the growth of cash & carry business, which in turn reflects the growth in fast moving consumer goods (FMCG), processed food industry, consumer electronics, grocery busi- ness, among other related sectors.

Last October, Metro had said it would be investing Rs 1,690 crore and adding another 26 wholesale stores. It has added at least three more stores since then. Describing FY 2019-2020 as ‘fruitful and encouraging’, Arvind Mediratta, Managing Director & CEO, Metro Cash & Carry India says: “We turned profitable for the second time in a row during 2019. Our focus and commitment towards the kiranas and independent busi- nesses continued. We strengthened our Smart Kirana programme this year and have already engaged with over 2,000 kiranas wherein we helped them with modernisation and digitalisation solutions.”

Covid-19 Impact

Explaining how his business was impacted in March, in the initial days of the lockdown, Mediratta says, “There were various factors including lack of synergy in the guidelines of local authorities across states and the disruption of the supply chains. Besides, the entire demand from the HoReCa (hotels-restaurants-cafe) segment was subdued as restaurants weren’t allowed to operate until the lockdown restrictions were eased.”

Walmart India’s operations were also impacted in March. But thing swiftly changed for it. “The ongoing impact of the pandemic has given rise to a new definition of essential items. There has been an impressive increase in the demand for work- and learn-from-home products,” said a company spokesperson.

“We have also witnessed new users adopting e-commerce, and value con- scious tier-2 and tier-3 consumers make more purchases. Also, peoplehave reoriented themselves and have started consuming more home cooked meals. As a result, there has been a significant uptick in kitchen appliances,” the Walmart spokesper- son added.

The pandemic has also changed the way consumers think about their health and has forced them to reori- ent their actions as well as their pur- chasing behaviour with a special focus on the channels they are using to shop, says Tanit Chearavanont, Managing Director, LOTS Wholesale Solutions, a wholly-owned subsidiary of Siam Makro Public Company (via CP Wholesale India). LOTS in India was established in January 2017 and currently operates three stores in Delhi NCR. Siam Makro is Thailand’s leading cash & carry operator.

“The initial phase of the lockdown, being marked by panic buying, resulted in bulk purchases of essential commodities, particularly items such as wheat flour, rice, dal, and FMCG food products. The second phase wit- nessed ease and calm among the con- sumers and the focus shifted to ready- to-eat meals such as chicken tikka, chicken nuggets, kebabs, etc., indicat- ing a rise in in-house consumption a nd h om e co ok in g ,” s a y s Chearavanont.

‘We saw 80 % growth during lockdown’

TANIT Chearavanont, MD, LOTS Wholesale Solutions shares with Ashish Sinha the learnings from the lockdown, future plans and the way forward. Excerpts:

On learnings from lockdown

LOTS is overwhelmed with the response received from our members and the trust that they have shown in our brand. Despite the challenging times, at LOTS our prior preparedness has helped us sail smoothly through the lockdown phase. Since early January our team regularly assessed the impact of Covid-19 on businesses and tailored strategies for a lockdown sce- nario in India. A large chunk of our revenue comes from FMCG and commodities/staples, which primar- ily falls under the essential category. As a result, these categories were a major focus among consumers dur- ing the lockdown.

On new trends

Overall, the average purchase value per customer has gone up with increased footfall at our stores largely from local kiranas and retailers during the lockdown. However, due to hotel and market closures during the lockdown, the footfall from the HoReCa (hotel, restaurant and Café) segment have been affected. All of our three stores in Delhi NCR have performed well during the lockdown phase, adhering to all the gov- ernment guidelines and taking safety precautions. We have witnessed a growth of more than 80 per cent during the lockdown period as compared to the same period last year.

On learnings from the pandemic

The pandemic has accelerated the use of existing and new technologies, with this digital connectivity takes even more of a hold on everyday habits. Online shop- ping and e-commerce adoption have gained traction and the trend will continue to stay. With a focus on O2O strategy and customer convenience, we have been serving our members through our e-commerce platform and our Sales Force app and have registered significant growth in sales through these channels.

On ‘Vocal for Local’ and expansion plans in India Guided by the concept of ‘Local Love’, 99 per cent of the products available are locally sourced. Our collec- tion centre in Haryana has been working very closely with the local farming community and other vendors to ensure smooth sourcing of fresh produce. We just completed two-years in India. Initially, we planned to open 3- 4 stores this year. However, keeping the situ- ation in mind our plans might be delayed. But in the long-term, we are looking ahead to move as per our business plan.

Warehousing Growth

The success of etailers, FMCG firms or the cash & carry businessis dependent on warehouses as they are the backbone of any large busi- ness involving storage, transfer and distribution of goods. Says Shishir Baijal, CMD, Knight Frank India, “Despite the economic slowdown and pandemic, warehousing remained resilient recording 44 per cent CAGR in the last three years. Demand has especially been strong from industries like third-party logistics, ecommerce, FMCG, among others, which is expected to continue in FY21.”

As per Colliers International, since 2017 the sector has attracted interest from multiple large institutional investors with inflows of $3.7 billion. Between 2017 and H1 2020, the sector cornered a 17 per cent share of the total private equity investment in real estate. During 2019 through H1 2020, the industrial and warehous- ing segment garnered the third high- est share of private equity invest- ments after office and retail.

“The uptick in ecommerce-led warehousing demand is visible from significant investments in the space by leading ecommerce majors as Amazon and Flipkart,” says an expert.

As of July 2020, Amazon plans to set up 10 new fulfilment centres across the country to increase its warehousing capacity by 20 per cent. After this expansion, Amazon will have about 60 fulfilment centres with more than 32 million cubic feet of storage space spread across 15 states.

E-commerce companies are now trying to stock inventory closer to their customers’ locations for effi- ciency and to maintain the quality of products upon delivery, as per a report by Colliers International. “Over the next 12 months, we believe in-city warehouses will gain traction, to be used as small distribution hubs. We expect occupiers to scout for in- city warehousing space in the range of 5,000-10,000 sq ft in major demand hubs such as Mumbai, Bengaluru and Chennai and the NCR,” the report says.


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