Metro Cash And Carry: A case study

The root cause of the problem was the lack of time available for the Training Department to formulate a detailed and effective training plan. This is due to the hefty workload; Senior Buyers in Offer Management Division could not give sufficient time to the Training Department to design an effective training plan.

In 2011, in Management Trainee Officer Program was introduced at METRO – Habib Cash & Carry Pakistan. It is still in the initial developing stages but has improved a bit from previous year. Previously, the training plan was not at all comprehensive as there were no objectives defined. Thus the trainers and the trainees had no idea what their objectives were, and how do they achieve them in order to have a positive outcome. This has led to misunderstanding amongst the trainers and the trainees.

The timeline of the training plan was not defined and no formal or informal assessment was practiced. Hence, the training plan was unable to provide a proper direction and exposure to the trainee buyers. The trainee buyers acquired different levels of knowledge, worked on different tasks and had different exposure which ultimately resulted in unequal training for the trainees. Moreover, trainee buyers did not utilize the complete training period in getting trained for those particular tasks that would be helpful in improving their performance and future career growth. A lot of time is wasted especially in the store training where the trainee buyers remained idle hence performing those tasks that were not relevant to their future job responsibilities. We could conclude that the objectives of the training program were also not met.

This concludes that the training plan faces numerous problems which need to be identified and resolved in order to have a proper comprehensive and effective training plan which will benefit the trainees as well as the company for making such an investment. The research project concluded that lack of comprehensive training plan was one of the primary reasons for unsuccessful implementation of the Management Trainee Program. With the help of the research findings and other secondary data analysis, a number of recommendations are made to eliminate the problems. The recommendations will help eradicate, or at least minimize the problems and issues in the training program to make it more effective for the future Management Trainee Officer Program.

METRO Cash & Carry is the leading international player in self-service wholesale sector. Under the brands METRO and MAKRO it operates over 700 wholesale stores in 29 countries throughout Europe, Asia and Africa. The wholesale offer a broad range of products and services customized to the specific demands of professional customers, such as hotel and restaurant operators, catering firms, independent small retailers, institutions and offices. (METRO cash & Carry, 2012)

METRO opened its first cash & carry wholesale center in Pakistan in 2007 and then expanded to 5 wholesale centers in a short span of 18 months. After the merger with Habib Group, the local business partners in 2012, today the company is operating 10 wholesale centers in Lahore, Karachi, Islamabad and Faisalabad cities. (Metro Cash & Carry Pakistan, 2012)

The company has a simple and efficient business concept: cash & carry wholesale, which is defined through its customer base: only professional customers are allowed to purchase at METRO-Habib Cash & Carry, all of them duly registered and provided with a customer card. It is not a super- or hypermarket chain for private consumption, but a modern form of wholesale exclusively tailored to the needs of businesses and companies. The core customers are small and medium-sized retailers as well as hotels, restaurants and caterers. The company offers business customers a comprehensive product range both in food and non-food and efficient business solutions to enhance the customer’s competitiveness in their own markets. (Metro Cash & Carry Pakistan, 2012)

The company has merged with the local head to head competition in the field of wholesales as Metro AG (MEO), Germany’s biggest retailer, combined its wholesale operations in Pakistan with local competitor Makro-Habib Pakistan Limited. Metro holds a major part of the operational business while Makro have a majority in the real estate.

The company has planned to further expand in many large cities of Pakistan. The wholesale center offers a wide array of:

Food items

Non Food items

Own brands

METRO Cash & Carry is the leading international player in self-service wholesale: customer-focused, international and innovative. The concept is oriented towards helping customers to successfully run their own businesses. (METRO GROUP, 2012)

METRO Cash & Carry in Figures:

METRO Cash & Carry

Locations as per 30th September 2012

722

Number of Countries as per 30th September 2012

29

Sales as per 31st December 2011

€ 31.2 bn

EBIT as per 31st Decemeber 2011

€1.1 bn

Headcount (full-time Equivalents as of closing date 31 December 2011)

116,408

Articles, Food assortment as per 31st Decemeber 2011

ca. 20,000

Articles, Non-Food assortment as per 31st Decemeber 2011

ca. 30,000

Source: (METRO GROUP, 2012)

Metro Cash & Carry looks back on a history of success in wholesale concepts. Founded in 1964 in Germany, the company quickly spread to many countries in Europe, Asia and Northern Africa. Its tradition in wholesale is accompanied by social heritage; a truly international corporate culture. (METRO GROUP, 2012)

International Expansion:

International expansion is a significant element of the corporate strategy. In about four decades, Metro Cash & Carry has grown from a Western Europe-centred wholesale concept to a leading international player in self-service wholesale, operating 722 outlets in 29 countries. There, Metro Cash & Carry not only benefits from the dynamic economic development but also strives to promote local purchasing power and consumer demand. (METRO GROUP, 2012)

Worldwide Activities:

Specifically, Metro Cash & Carry is focused on the dynamic growth markets in Asia and Eastern Europe as well as in the Middle East and Northern Africa. The majority of all new business locations are established in these growth regions. Over three billion people, about the half of the world’s population, live in countries where the company is already present. (METRO GROUP, 2012)

Social Responsibility:

When entering new markets, Metro Cash & Carry does more than securing its own future: it actively creates jobs and often pioneers the development of modern trade and supply structures. The company is committed to its social responsibility. Close cooperation with regional producers and suppliers builds up trust and increases the level of acceptance that Metro Cash & Carry enjoys in each of its locations. (METRO GROUP, 2012)

The Concept:

Today, the company has grown to become the leading international player in self-service wholesale. Much copied around the world, Metro Cash & Carry is once again setting itself apart from its competitors. The Metro Cash & Carry product range and services – from delivery to ready-made business solutions – is outstanding in its diversity, quality and excellent price-benefit ratio. It operates with an unparalleled expertise in providing fresh food products. (METRO GROUP, 2012)

Local Requirements:

Up to 50,000 different food and non-food products catering to the specific needs of national and local customer are always available in excellent quality at Metro Cash & Carry. Worldwide, Metro Cash & Carry is the first to offer regional products for regional professional demand: in China, specialties like dim sum are as much a part of its product range as köfte in Turkey or plum pudding in England. This implies a unique local sourcing system: up to 90 percent of Metro Cash & Carry goods are purchased from local producers and suppliers. (METRO GROUP, 2012)

VISION STATEMENT

“METRO will dominate the Cash & Carry wholesale segment internationally, through our unique business formula which improves the competitiveness of our customers all over the world.” (Doctstoc, 2011)

The Vision statement of METRO Cash & Carry is very simple, to dominate the wholesale segment internationally by becoming the market leaders. No matter where they operate, the common vision statement is shared amongst all the METRO Cash & Carry businesses. Therefore METRO – Habib Cash & Carry also has the same vision inherited by METRO AG.

The vision is achieved through formulation of unique strategies which makes its way forward by growth and expansion. It has become the fourth largest wholesale business in the world, wall-mart being on the top. Our competitors include wall-mart, Tesco, Carrefour etc. and the competition is immense amongst each other. But the vision to dominate the Cash & Carry wholesale segment internationally is what METRO Cash and Carry is all about.

Importance of customers all over the world is also clearly evident in the vision of METRO Cash & Carry. The main objective is not only expanding the wholesale business worldwide, but also to ensure the well-being of their customers. It is an excellent strategy as customers feel important and comfortable forming a partnership with METRO Cash & Carry.

MISSION STATEMENT

“METRO is a Cash & Carry Wholesaler for businesses and professionals. METRO provides quality products and business solutions at the lowest possible prices.” (Doctstoc, 2011)

The mission statement is all about how the company manages its operations and in which direction it is moving. Normally, there are nine important components which exist in a mission statement that make the mission statement strong and impactful.

These components include customer, products and services, markets, technology, concern of survival, growth & profitability, philosophy, self-concept, concern of public image and concern of employees. (MBA – Tutorials, 2012)

The mission statement of METRO Cash and Carry does not clearly include the nine components mentioned above hence it cannot be considered to be strong and impactful. It does tell us about its business operation’s model but more detail would have been appropriate. It does not explain what quality products and services it is providing, what market they are catering and targeting, what technology do they use, how they plan to survive and sustain in the industry and what are the strategies for growth and profitability in short-run as well as long run.

It can be categorized as not a very strong mission statement, which can be improved by including these characteristics and components in to it. Mission statements are usually more self-explanatory, which portrays a better picture of the company’s mission and objectives to its internal and external stakeholders. METRO Cash & Cary should amend its mission statement so that it can convey a positive impression of the company; hence it will result in being more purposeful for stakeholders.

METRO – Habib Cash & Carry Pakistan

Since the merger took place, METRO – Habib Cash & Carry has so far a total of 10 stores in Pakistan. For each 5 METRO stores it has invested 20 million Euros, taking the total investment to around 100 million Euros. They planned to grow in coming years by taking the total number of stores to 10, which has been achieved by the Merger with Makro Cash & Carry, owned by House of Habib.

The Head Office of METRO Cash & Carry Pakistan is situated at Thokar Niaz Baig, Multan Road, Lahore. There are approximately 300 employees in the Head office with an average of 235 to 245 employees per store. It is a unique business in Pakistan since there are no direct competitors of its scale. In Pakistan, 95% wholesale industry is unstructured and METRO – Habib Cash & Carry is considered to be the giant in the structured wholesale industry.

METRO – Habib Cash & Carry has invested 20 million Euros per store, thus contributing to the economy with large scale of Foreign Direct Investment. As per the Standard of procedures (SOP) proper invoicing is followed with separate tax column in place, in order to inform its customers about their contribution in national exchequer in every transaction. Proper Documentation of each invoice for tax purposes is also strictly followed.

According to the SOP, METRO – Habib Cash and Carry conducts business only with those suppliers that are registered with FBR for tax purpose. There is full transparency of transactions, whether they are imports or local. There is a joint effort made in order to develop exports with farmers and the Government which will ultimately result in prosperous future of the economy.

ORGANIZATION CHART

Figure 1: Source: MCC-PK Organizational Structure (METRO Cash & Carry Pakistan, 2011)

INDUSTRY & COMPETITORS’ ANALYSIS

INDUSTRY ANALYSIS

Pakistan’s retail sector has always been dominated by the thousands of small corner shops nationwide. At present, it is going through a dramatic facelift as the consumers are becoming more discerning and demand greater choice.

The rise of wholesalers and hypermarkets such as METRO – Habib Cash & Carry and Hyperstar has given all the Pakistanis an opportunity for a more consumer preference driven shopping experience.

According to the Small & Medium Enterprise Development Authority, there are over 125,000 retail outlets all across Pakistan. Approximately 94 per cent of these are miniscule corner shops and small retail outlets in cities and villages. Perhaps most critically, there is no nationwide chain of retail or even wholesale outlets. This poses a significant challenge for most businesses looking to enter the food and agribusiness sector. Despite the fact that Pakistanis spend close to $36 billion a year on food and other retail shopping, businesses find it very difficult to reach the mass market of Pakistani consumers simply because it is not a single marketplace but tens of thousands of little shops. (Tirmizi, 2010)

Perhaps there is a more concentrated market in the urban areas of Pakistan still it does not have any chain of retail outlets that operates with its own supply chain.

Logistics is an exceedingly important cost component that eats away at the margins of most producers of retail consumer items. Take, for instance, Unilever, one of the largest consumer goods company in both Pakistan and the world. Logistics costs constitute close to 19 per cent of their revenues, which depresses the profitability of a machine. This distribution does not capture the fact that revenues themselves are depressed owing to the margins that the manufacturers have to give to hundreds of distributors throughout the country. While distributors are common in even developed markets, they work on thinner margins than Pakistani distributors. And the presence of large retail chains means that often producers can sell directly to retailers and wholesalers, which reduces overall distribution costs. (Tirmizi, 2010)

For decades, the large supermarkets such as Agha’s supermarket and Nadeed’s in Karachi, Al-Fateh and HKB in Lahore exist in Pakistan. But the origin of a retail revolution began by the advent of foreign players in the country. Such as a German wholesaler, Metro Cash & Carry has five stores in total across Pakistan and plans to grow its existence nationwide. Company such as Metro Cash & Carry is giving the Pakistani middle class an opportunity to choose between different alternatives which are available in the now developed markets.

Wholesale and retailing has over the years evolved as a major industry worldwide. Numbers of leading companies are retailers or wholesale businesses. The total size of retailing business was estimated to be over $8 trillion back in 2006, whereas over 50 of Fortune 500 companies belong to this industry. That means 10% of top 500 companies are from wholesale and retail industry. Wal-Mart is number 1 on that list, which is a leading retail chain in United States of America. The trend has been picking up in developing countries as well, and in Asia 25 of top 200 companies is from the same industry as well. This gives a clear idea of the growth in the industry and its importance. (Guhathakurta, The Great Indian Retail Story, 2006)

COMPETITORS’ ANALYSIS

METRO – Habib Cash & Carry Pakistan operates as a wholesale and retail business. It has 10 stores in total but still possess a very small share in the wholesale industry due to a large proportion of unstructured market. When questioned the management of METRO – Habib Cash and Carry Pakistan about the major competitors of METRO the answer was that they do not have any direct competitors. It is true since their target market is completely different from other wholesale businesses present in the industry with an entirely different business model. Other wholesale businesses are small in size, specialize in specific commodities, and cater particular segment of the market.

METRO – Habib Cash & Carry faces competition from small and specialized wholesalers present in the market such as businesses in Akbari Market, Abid Market, Hall road etc. It is only METRO – Habib Cash & Carry which consists of an assortment of more than 56000 Stock Keeping Units (SKUs) whereas the businesses in unstructured markets either deal in specialized product range or possess huge assortment but in a very small scale.

After the Merger between METRO and Makro Cash & Carry, only one indirect competitor is considered important, namely Hyperstar. METRO – Habib Cash & Carry compare their prices and assortment levels with hyperstar frequently in order to make sure they are providing quality products in cheaper prices than hyperstar (which is basically a retail facility not wholesale facility).

Hyperstar concentrates more on end customers, unlike METRO – Habib Cash & Carry Pakistan which targets professional customers and businesses. Hyperstar do have some similarities as well with METRO Cash & Carry Pakistan.

Hyperstar Pakistan:

Hyperstar is unique in its kind. It’s a hypermarket chain, concentation is totally on end consumers, currently operating with two stores in Pakistan, one in Lahore and the other in Karachi. The Lahore store started its operations back in 2009, where as Karachi store was opened in 2011.

Hyperstar introduced hypermarket retail concept in Pakistan, and is rapidly gaining popularity amongst end consumers.

Hyperstar is subsidiary of Majid Al Futtaim Hypermarkets, currently operating 38 hypermarkets across 11 countries. The group were the first ones to introduce hypermarket model in the Middle East back in 1995 and established themselves as the most active shopping concept developers. (Hyperstar Pakistan, 2011)

Hyperstar and Majid Al Futtaim Hypermarkets are franchise of Carrefour. Carrefour Group is France based, and for past more than forty years grown to become one of the world’s leading distribution groups. Carrefour has become the world’s second largest retailer, and the largest in Europe. Carrefour operates four different types of stores under its banner, including hypermarkets, supermarkets, convenience stores and cash & carry. (Carrefour, 2011)

FINANCIAL ANALYSIS

In the financial year 2011, METRO GROUP sales declined by 0.8 percent to €66.7 billion. In local currency, sales rose slightly by 0.2 percent, nearly matching the previous year’s level. In Germany, sales declined by 1.0 percent to €25.9 billion and were affected by store divestments at Metro Cash & Carry and Real. International sales fell by 0.7 percent to €40.8 billion. In local currencies, however, sales increased by 0.4 percent. As a result, the international share of sales rose slightly from 61.1 percent to 61.2 percent. METRO GROUP’s EBIT declined by 4.4 percent to €2,113 million in the financial year 2011 compared to the previous year’s level. EBIT includes special items from Shape 2012 totalling €259 million. EBIT before special items declined by just 1.8 percent to €2,372 million. In 2011, net profit for the period (Group net profit) totalled €741 million and comprises special items totalling €238 million from Shape 2012. Earnings per share before special items, that is adjusted for the special items from Shape 2012, totalled €2.63. (Annual Report METRO, 2010)

In the financial year 2010, METRO GROUP sales rose by 2.6 percent to €67.3 billion (in local currencies +0.9 percent). International Group sales increased by 5.4 percent to €41.1 billion, bolstered by positive currency effects. In the financial year 2010, the international share of sales amounted to 61.1 percent. In Germany, sales adjusted for location and other divestments, matched the previous year’s level. METRO GROUP’s EBIT increased by 31.5 percent to €2,211 million in the financial year 2010. Special items include one-time expenses related to the efficiency and value-enhancing programme Shape 2012 totalling €204 million. EBIT before special items reached a new record of €2,415 million. This corresponds to earnings growth of 19.3 percent. Net profit for the period (Group net profit) totalled €936 million. It comprises special items from Shape 2012 totalling €203 million from Shape 2012. Earnings per share before special items totalled €3.12 (previous year €2.10). (Annual Report METRO, 2010)

Carrefour’s full year sales in 2011 including VAT was estimated to be €91.5bn. in the fourth quarter of 2011 it was €24.2bn only which was mainly due to a deteriorating envioronment that impacted non-food training. The food revenues generally resilient. In 2010 the sales including VAT were estimated to be €101.0bn. Basically the sales are being impacted by transportation and weather discruptions.

Since half decade now, Tesco’s sales revenue has grown consistently whereas the other competitors have experienced hurdles in sustaining their sales turnover. We can see from the above table how the net profit for the year has increased significantly for Tesco from 2009 to 2011. Regardless of consistent financial performance by TESCO over the years, its share price is vulnerable to economic and monetary downturns that might affect the consumer spending. However, the effect will be the same for all other competitors.

LITERATURE REVIEW

According to (Sum) training is a very powerful tool which plays an important part in improving the organizational performance, efficiency and competitiveness. By managing training it is meant to plan, monitor and evaluate the training program and implement strategically.

According to (King, 2011), the factors affecting the failure and success of wholesale businesses are various and range from a variety of factors. For a business to be competitive and successful in the market, experience is the most important factor according to the author. Further on the author states that like any other business, the passion to succeed is one of the major factors that contribute to the success of any company.

(Riemers, 1998) elaborates the significance of wholesaling in centres of distribution because they are the main link between retailers and manufacturers which is why they play such an important part in the channels of distribution where they get the products delivered to the final customers. The author has further asserted the link and significance of the geographical location of the wholesale business in the Netherlands and because of the findings, the wholesale outlets at first were located on the outskirts of the main cities and with time, their distance to the buyers have decresed but their distance to the suppliers has remained the same – which the author advocates is due to the increase in transportation costs over the years, the expansion of the cities and the improving infrastructure. Also, since the wholesale businesses have increased over the years, this has also given cause to the wholesale businesses moving to the outskirts.

Elaborating the wholesale industrys various economic phases which date back to the beginning of civilization, (Engle, 1933) has asserted that the industry of wholesale system has been facing hurdles due to the massive development of the system of chain-stores and diresct selling by the competing manufacturers. Specialisation on the other hand has brought hope to the industry since it has helped in the system of distribution and logistics and will survive the onslaught of competitors in the future as well. The author further advocates his opinion that due to the massive development in retailing and manufacturing, wholesale has been less thought of or has been ignored but nevertheless its significance cannot be put aside. The evolution of wholesaling has also been elaborated with the fact that the help small-scale manufacturers got when retailers marketed their businesses from wholesalers and retailers as well. The author has also divided the market into two segments – the first one of wholesalers who sell to other whole salers and the second segment of the wholesalers who sell to retailers.

According to (Toulme, 1949), the success of trade in the United States is because of wholesale grocers. Instead of just keeping grocery products, these wholesale grocers carried all sorts of different products at their outlets which catered to the needs and wants of the consumers. Further on the author advocates that a wholesaler is more efficient than a manufacturer because it provides more economic services ranging from assembling the products to the transportation of products. So much can be said about wholesaling that it contributes largely and benefits the whole economy by providing a range of services to the consumers.

(Zirram, 2011) explains an impression of the retail, trade and wholesale industry in Pakistan. Categorizing the whole industry of Pakistan in 9 different categories, retailers and wholesalers are amongst them. Wholesalers are few in number when equated to small retail shops, which is a queit obvious fact. It discusses the history in city of Karachi, in which they are mainly situated; in 2 areas (by the name of Jodia Bazar and Joona Market) from where all the retailers used to consume their products until 1970s. Finally, with the development of city, more wholesale centres were setup in various parts of the city. The story is the same for the rest of the country. Trends in consumer demands and taste often change and wholesale centres have advanced in to wholesale retailers like METRO – Habib Cash & Carry Pakistan which is a great leap forward.

(Bhatt, 2008) and (Guhathakurta, The Great Indian Retail Story, 2006) back up the (IBEF, 2009) report with their findings and analysis of retail business in India. The deomgraphics and economic conditions of India support the development of hypermarkets, cash and carry stores, and other branded outlets. METRO – Habib Cash & Carry can apply these dynamics to its benefit by certifying that it builds consumer loyalty towards its stores and secure a major market share. In Pakistan, METRO – Habib Cash & Carry brought the conception of cash and carry wholesale centres and modern trade. These facts and figures illustrate that, METRO – Habib Cash & Carry is becoming a major and player of wholesale and retail industry in Pakistan.

There are two types of training; general or specific according to (Barrett & O’Connell, 1999). General training is the training that helps the trainee to perform better on the job in their current organization as well as in the other organizations. On the other hand specific training helps the trainee to enhance and improve performance in the current job position and in the same organization. The results of these trainings illustrates that the general training plays an important role in the productivity growth but the specific training does not have positive effect on the productivity growth. The positive effect might be in the form of changes in work organization, size of the firm, level of human resource in the organization and corporate restructuring. Moreover, Barrett & O’Connel explains that if the trainee has positive impression about the training, the productivity would increase. If the trainee believes the structure of the training is to improve its performance in the organization as well as elsewehere, they will put more effort on acquiring knowledge and experienece from that training.

(Baldwin, 1999) in his research revealed that firms believes in developing competencies in wide range of areas in order to be more successful. The factor that differentiates fast growing companies from slow growing companies is improvement and innovation. The training helps in enhancing productivitry in larger organizations. It can be done through better Research and Development, adaptation of advance technologies and formulation of new processes which result in much improved efficiencies. On the contrary, smaller companies carry training sessions which help them in handling newly introduced equipment, machinery or technology. The training benefits all the organization in numerous ways, particularly in services sector, in order to aid and equip the workforce with new skills that help the organization to be more efficient. Innovation is linked back to training as through such trainings to the employees the companies are looking for innovative ideas in current processes.

International data set of five thousand and more companies across twenty six countries in used in the research of (Hansson, 2003). The research carried out explains that the company’s training provision depends upon the company specific factors; human resource management practices. Two measures of training which are widely used; incidence and intensity, are determined by various factores that cannot be attributed to the specific factors. Increase in staff turnover is majorly caused by lower profitability, as the companies consider it to be a loss which feeds on the profitability of organization. The money spent on trainings is usually linked with the profitability of the organization, which also states that the economic benefits of such trainings out weigh the price of staff turnover. It is an investment decision that whether training should be conducted or not as it results in the increase of profitability in the future and hence does not and should not consider the past profitability of the organization.

(Moreno, Bhattacharjee, & Brandon, 2006) carried out a research on the auditors to study the effectiveness of different training techniques on improving the analytical procedures performance. Problem solving training and worked out example were developed as mechanisms for acquiring the knowledge. These mechanisms are then combined with various levels of self-explanation. During the research, there was a baseline group of participants who were not provided any training, whereas there were other six groups of paricipants who were given six different training techniques which included worked out example, self-explanation, outcome feedback, problem solving, problem solving with self-explanation and worked-out example with self explanation. Later on, the participants were requested to complete a analytical procedures case. The results illustrated that problem solving training or worked out example combined with self-explanation out performed the other participating groups. The results are really important for the particular study, since it shows how the combination of techniques are compulsory in order to formulate an effective training program which will benefit in improving the decisi