RIL  snaps  Up  Metros India Wholesale Biz

With the acquisition, Reliance Retail strengthened its grip on India’s food and grocery industry, with the Metro wholesale stores in prime locations giving India’s largest offline retailer a large base of registered kirana stores, institutional customers and a robust supplier network.

The deal is positive for Reliance Retail and will give it access to more than 3 million business customers, said Abneesh Roy, executive director of institutional equities at Nuvama. “Its recent foray into fast-moving consumer goods business under the Independence brand could benefit. This will help Reliance Retail as it gets access to supplier network and global best practices of Metro," Roy said.

Metro cited the changing market dynamics in the retail ecosystem as the reason for its decision to exit India, stating that it would require a “sizeable investment" to continue growing the business. The German retailer said its business would be better suited to an owner with a more suitable presence and network in India.

A person close to the development said Arvind Mediratta, the current managing director and chief executive of Metro Cash and Carry India, will continue to lead the business till the deal is closed.

“The acquisition of Metro India aligns with our new commerce strategy of building a unique model of shared prosperity through active collaboration with small merchants and enterprises," said Isha Ambani, a director at Reliance Retail Ventures.

The scope of the transaction comprises the operative business of all 31 Metro India wholesale stores and the real estate portfolio that includes six store-occupied properties. “Metro India’s equity value of approx. €0.3 billion implies an EV/sales multiple of 0.6x based on sales of fiscal 2022 and considering lease rental and other related liabilities of €150 million. Upon closing the transaction and assuming constant currency, Metro expects a transaction gain of approx. €150 million and an EPS (earnings per share) gain," Metro AG said in a statement.

The transaction is expected to be completed by March.

The sale of its India business reflects Metro’s increasing focus on its core European markets and exit from Asia. It sold its China unit in 2019 and exited Japan in 2021.

Indian operations fell out of Metro’s core growth strategy due to the accelerated shift in the industry landscape and increasing competition, the German retailer said. The Indian industry is currently experiencing strong consolidation, and disproportionate growth in e-commerce, including the business-to-business segment, Metro CEO Steffen Greubel said.

“Due to the market dynamics, a sizeable investment would be required to further grow the business. Therefore, now is the right time to use the momentum and open a new chapter for Metro India," he said.

Wholesale retailers have struggled in India due to the dominance of small mom-and-pop stores and the strong direct distribution networks established by FMCG firms. This has led to the exit of several global retailers, including Carrefour in 2014 and Walmart India in 2020. Flipkart, majority-owned by Walmart, acquired the American retailer’s wholesale business in July 2020.

Reliance Retail started opening wholesale stores, known as Reliance Market, in 2011 and had over 40 stores. However, in the past 2-3 years, many of these stores have been converted to warehouses or fulfilment centres as the company focuses on its omnichannel strategy.

“Reliance is anyway building warehouses and fulfilment centres around the country—some of these will help in that too. This way, it keeps it open to properties being used as fulfilment centres to serve customer orders as well as kirana orders," a person familiar with the development said, requesting anonymity.

Metro India, which started operations in 2003, operates 31 large-format stores in 21 cities. It has about 3,500 employees. In the year to September, it generated sales of ₹7,700 crore.

“Metro had done some work around tech, customer registration and linking up to the kirana ecosystem, backward integration in the supply chain, which has earned it some value. The sale (for Metro) is largely disposal of non-core that should have happened years back," an investment banker tracking the retail sector said.

Ranjani Raghavan in Mumbai contributed to the story.