Reliance’s acquisition of Metro Cash & Carry – All the details that investors should know

Introduction

The name Reliance has steadily grown its presence in every segment and has become a market leader. In the retail section. Reliance is set to add a new feather to its cap by including Metro Cash and Carry into its fold. These are among the biggest names in the retail segment and them coming together will ultimately benefit the end consumers. The details of this acquisition are highlighted hereunder.

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What is the history of the Metro Cash and Carry business in India?

Metro Cash and Carry is not a new name in the Indian retail segment. They have operations in 34 countries and entered the Indian market in 2003. Their customers primarily include the local kirana stores, hotels, restaurants, and caterers (HoReCa), retailers, companies, institutions, and SMEs. They have been operational in various regions in the country and have 6 stores in Bengaluru, 4 in Hyderabad, 2 in Delhi and Mumbai each, 1 store each in the areas Jalandhar, Zirakpur, Amritsar, Ahmedabad, Surat, Indore, Lucknow, Meerut, Nasik, Ghaziabad, Tumakuru, Vijayawada, Visakhapatnam, Kolkata, Jaipur, Guntur, and Hubballi. 

The business of Metro Cash and Carry was dependent on business customers as only they were allowed to purchase through these stores and needed to have a customer registration card. Metro Cash and Carry, although a big name in the B2B segment, has been incurring losses continuously for the past many years except in FY when it had a net profit for the first time.

 In FY2021, This German-based wholesaler had reported a loss of Rs. 67.37 crores in FY 21 with a turnover of Rs. 6503.25 crores. The exit of Metro AG from the Indian market is therefore on the backdrop of poor financial performance.

What is the offer made by Reliance?

Reliance already has a huge presence in the retail segment through its retail stores and digital segment. They have further recently acquired the chain of Future Group Stores which had the merit of being the oldest and the largest hypermarket chains in the country. These new Smart Bazaars have enhanced their stronghold in the retail segment. The Reliance bid for Metro AG is for an estimated 500 million euros which are approximately Rs. 4060 crores. This deal will include all 31 wholesale distribution centers, land banks, as well as other assets that are owned by the German giant. With this acquisition, Reliance is set to assert its dominance in the B2B segment and the retail segment in the country.

Reliance has completed the due diligence of the stores and the deal is set to be closed by the end of Dec 2022 with operations being converted into B2C model. The deal price is set at 500 million Euros or Rs 4060 crore. Through this acquisition Reliance is looking to compete with the likes of other multi brand retail chains.

Who were the other participants in the race to acquire Metro Cash and Carry?

The B2B segment is considered to be a low-margin segment. This has prompted many big names like Carrefore to exit the Indian market. July 2020, saw Flipkart Group Acquire Walmart India Private Limited which had been operating in the Best Price Cash-and-Carry Business. 

Reliance had been in the running for acquiring this B2B giant along with many other players. Other players that were in the race to acquire the German Metro AG were Siam Makro (part of the Charoen Pokphand Group of Thailand). They have been operating the wholesale cash and carry business under the brand name LOTS Wholesale Solution, however, last month they announced their withdrawal from the bid. A few other major names in the running for Metro AG’s India business were Amazon, Swiggy, Udaan, Tata Group, and D-Mart. However, Reliance was the last bidder officially standing in the race to acquire Metro AG.

 The company originally was aiming for a price between €1.5 billion to €1.7 billion for their Indian business but now has reportedly settled for less than half of its asking price.

Conclusion

The retail segment of Reliance Group is under the umbrella of Reliance Retail Ventures Limited which is a subsidiary of Reliance Industries. The consolidated turnover reported by RRVL was around Rs. 2 lakh crores for the year ending 31st March 2022. The retail segment in the country will further shrink with this acquisition by Reliance. The reason for many players exiting this market is the focus on Swadeshi and not videshi which has been the mantra of the government for many years now as well as the need for deep pockets in the retail segment which cannot be matched by all the players. 

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