WACC

METRO Cash and Carry

Saad Mumtaz

Aanish Ashfaq

Umer Ramzan

Huzaifa Bin Saeed

INTRODUCTION TO METRO:

METRO Cash & Carry was started by Dr. Otto Beishem in 1964. It originated from Germany
and then expanded to other parts of Europe and gradually expanded to parts of Asia and other
continents. According to estimates of 2006, it had nearly 250,000 employees. METRO follows
great stories encompassing success in the modern business. The company grew to become top
international player in sector of wholesale. It has been offering high quality goods. Goods are of
different uses like categories of food, nonfood, textile and many more. They use unique model of
wholesale in business-to-business. It is focused only towards professional customers such as
hotels, restaurant, and caterers as well as small and mid-sized retailers. METRO changed the
perspective of wholesale chain. It operates 16 hours per day. METRO Cash and Carry offers this
objective gathering a more prominent productivity than the multilayered inventory network
consequently helping them to enhance their business: By offering them a one-stop answer for
their buys, by helping them to enhance their combination, by offering them great items at
sensible and straightforward costs and by offering them a predictable supply source. They have
changed pattern of shopping, individuals want to go where they can discover greatest assortment
under one rooftop.
Metro is intending to open new stores at various areas. Organization name itself is an open door
as "Metro" itself is an extremely prevalent name and they can extend business with any
organization they get a kick out of the chance to. Individuals are coming more towards clean
sustenance. Metro Values its Employees and Customers Efficient and minimal effort activities
Not giving products using a credit card bases.
Facts
METRO is the first foreign cash and carry to enter market in any given country. It is a distinction
for them. In 2005, they made a record by opening 43 new stores. Austria was first external
country where METRO entered in 1971. In 1991, Morocco was targeted by them and hence was
first non-European country to have METRO store. METRO took over Makro in previous
century. Makro was a coal trade company. Makro now operates as competirot and METRO’s
subsidiary in different countries at a same time. In 2006, 26 new countries were targeted by
them. They follow city by city approach to expand. Starting with a major metropolitan city like
Bangalore, Shanghai, and Moscow and then expanding to Chennai, St. Petersburg. Mandi
concept was followed in india and they were omt allowed to buy things directly from farmers.

Qualitative Info
If we talk about this, around 50000 products are offered by company. Volume sources by 25%
per year. More than 50 sectors are targeted. Around 15 million euros per store are spend to reach
the share. Around 5 million euros are spent for the net working capital on normal store. Local
market has stock of 90%. Some of stores have got 60-80% local market stock. Normally the
payback period is between 2-3 years on a normal store. They invested 700 million Indian rupees
on a store. Around 38 million euro turnover is gained yearly from a single store

Issues
Since METRO has been operating in many countries so they face problems in operating in
different areas. Initially the German retailers filed against METRO for destroying their
businesses. Another issue was that METRO used to help those people who belong to business
sector. Not everyone was allowed to enter in store and buy products from there. They had an
issue in process of careful coordination of various constituencies. Each country had its own
culture and to cope with each culture requires time and METRO faced these issues. Whenever
new governments come, they change rules for foreign stores like METRO to operate.
Establishing headquarters in country also requires huge investments. The time estimated to
complete a building was also not following schedule. If we talk about METRO’s challenges in
China, then several issues raised which hindered performance of company. The Chinese
government held enterprises for dealing with commodities and stores like METRO couldn’t be
involved in running independent activities. Joint Venture with companies like Jinganj reduces
profits and sales. There were=e language issues in China. Company had to do more negotiations
with Chinese people as they were not willing the actual concept of METRO C&C Model. They
considered METRO just like a simple hyper market. Another issue was that Investors and
officials of China were not aware with warehouse concept. They made fun of METRO that how
a business could run without involving end user customer. To educate Chinese, 25 people were
required while in Europe only 5 people were required. So this resulted in increase in costs. If we
talk about Russia, infrastructure was the biggest issue. They had to transport things across 2700
km, and it required four working days to travel. The number of drivers was kept 2 so that they
can work on rotation basis. High logistic costs incurred in this process. If we talk about India, it
faced most of issues than in any other country. The buying patterns differ here. METRO was
barred from buying things directly. Political unrest also caused problems for them. Climatic
situations were also problem. They were related as modern EIC (East Indian Company). Waste
of food was also problem as Mandi system of India caused inventory to be wasted by 40%.
Language issues are also problems.

Core Problem
METRO is operating all over the world and faces problems. Among all other problems, the core
issue is real estate prices. In different parts of world, the prices of land has increased. As
warehouse requires huge area to cover so it costs too much for company. Land prices in China
doubled than of previous. That’s why expansion in number of METRO stores is slow. About 13-
15 million euros are required to open new store. In Bangalore, company had two stores but now
as it is IT hub, so price of land have increased to three folds.

Solutions
Company is good with solving the problems. They did negotiations with Chinese officials on
several issues which reduced costs and time. They used diplomatic skills to deal with new
governments coming in different countries. Company dealt the issue of culture difference by
sending 178 mangers of 25 different countries to work in other countries. In this was they
learned the target marketed country culture. They had to offer low prices so that they can break
the traditional way of trading in India and China. They bridged gap between the demand of urban
market and supply of rural market. They invested in cold storage so that fresh food is given to
customers. They targeted Turkish in Germany by providing Turkish products at METRO stores.
They used basements of stores to operate and reduce costs. They worked with aggregators not
with individual farmer in order to reduce time to deal with layers of wholesalers.

Conclusion
As this case is about the distribution, operations of METRO C&C, we came to conclusion that it
has changed trend of purchasing and buying patterns. Things under one roof helps people to save
time. A German based company has flourished in several foreign markets but it struggled to
operate in China, Russia and India. METRO also owns MAKRO in some of the countries. They
invest in those new markets where population is more and feasibility is good. They operate under
3 categories of Classic, Junior and ECO. It is dependent on size of products they offer. Company
has worked with Unilever and P&G. It operates 16 hours a day. Payback period for store setup is
normally in 2 to 3 years. MGB is responsible for various functions like merchandising, negating,
advertising, supplying. MGB has got its further subsidiaries. Many competitors like RELIANCE
have caused issues for them like establishing temperature controlled warehouses with effective
logistics and management. METRO has used vertical buildings in china and japan to reduce cost.
METRO manager holds around 300 people in a single store and is responsible for 38 million
euros turnover.