Founded in 1964 amid humble circumstances, the Düsseldorf-based company has grown up to be the world’s largest supplier of self-service supermarkets. It operates about 500 stores in 26 countries on the continents of Europe, Asia and Africa. It has become so big that in 2003 it made up almost half of Metro AG’s E53bn in sales and 60% of its E1.23bn in operating profit.

Secret of success

So what’s the secret to Metro Cash & Carry’s success? It was the first company on the globe to exploit a need among food industry players to stock up at the best price possible. And they get that price when they procure the goods themselves. “The innovative concept distinguishes itself due to a high degree of choice, strong customer orientation as well as competitive prices. Our customers find everything they need under one roof,” says Thomas Hübner, chief executive of Metro Cash & Carry, who spoke to fDi in an interview at the company’s new store in Darmstadt.

Owing to the popularity of its stores, Metro Cash & Carry’s worldwide expansion is set to continue. According to Mr Hübner, the company plans to establish 40 new supermarkets this year and in subsequent years, with two-thirds of that number to be set up in Russia and Asian countries, including China and India.

“The enormous potential of the emerging markets for us is only beginning to be tapped. Opening 40 markets annually worldwide is not an ambitious aim if you consider that in China alone, there are 89 cities which each have five million inhabitants,” says Mr Hübner,

To finance the expansion and modernise existing stores, Metro Cash & Carry has budgeted about E750m per annum, all of which, says Mr Hübner, comes from its cash flow. “We never accept subsidies from the countries we expand in because if we did, we’d probably have a serious public relations problem.”

Emerging markets

He claims that the company’s expansion in emerging markets has greatly benefited the local economies, particularly if they are agriculturally-oriented. “All farmers get a guarantee from us that we will buy their goods all year round if we think they belong in our stores. This is something that farmers in places like India truly appreciate, as other stores only pay them for what is sold whereas we pay them upfront for what they can deliver.”

According to Christian Bruns, an analyst who covers Metro AG for the Cologne private bank Sal. Oppenheim, the expansion in emerging markets – where the company is achieving returns of between 15% and 16% on capital employed – is highly desired by the politicians there. “That’s because Metro Cash & Carry provides badly-needed infrastructure, promotes hygienic standards and helps out small businesses due to its huge assortment at very competitive prices,” says Mr Bruns.

To understand how the company’s successful business model works, consider a typical visit to one of its stores. Requiring only a food industry licence, Metro’s Cash & Carry customers enter what is basically the equivalent of a warehouse. There they help themselves to up to 20,000 different food items and 30,000 non-food items, depending on the size of the store. Once their spacious carts are full, they pay for their items by cash or card and go.

Food tastes vary from country to country, so Metro Cash & Carry has tailored its goods to the needs of the 26 markets in which it operates. According to Mr Hübner, between 70% and 90% of the products sold in these markets are from local suppliers.

“Some of the best examples I can think of are 63 different salamis in Hungary or 600 types of cheeses in France. In China, we offer fresh frogs and snails, which is something we could never do in Germany, as the health authorities would come and immediately shut us down,” says Mr Hübner.

Warehouse approach

Less compelling, however, is Mr Hübner’s claim that the business model is innovative. Having adopted the same warehouse-style approach, Swedish furniture retailer IKEA is as much a global success in its niche market as Metro Cash & Carry is. One-stop-shopping at competitive prices also made US company Wal-Mart the retail behemoth it is today.

Even so, it is to Metro Cash & Carry’s credit that it realised early in its history that its business model could be a success both in Germany and around the world. It began to internationalise its business four years after being founded, opening its first overseas store in the Netherlands. The gamble quickly paid off, and between 1970 and 1990, the company opened about 200 stores in Germany and Europe. By 1990, Metro Cash & Carry had reached Turkey and by 1991, Morocco.

In the mid-1990s, the company again demonstrated foresight by being one of the first trading companies to venture into the emerging markets of eastern Europe and Asia. Since then, the pace of expansion has been more frenetic. Beyond six countries in eastern Europe, Metro Cash & Carry operates stores in Russia, India and China, as well as Japan and Vietnam.

No plans for US

Worldwide expansion has, however, so far been limited to the eastern hemisphere. The company has not yet dared to enter the US as it would probably have a much tougher time competing in a market full of food suppliers and one-stop-shopping retailers like Wal-Mart and Sam’s Club.

While he does not rule out North American expansion in the future, Mr Hübner says: “We have to be sure that we can generate sustainable growth and can offer added-value like we’re doing in the emerging markets. And we know we can provide that for at least the next 10 years.”

Mr Bruns believes that once the company decides to cross the Atlantic, it will target Latin America, because the competitive pressures there are considerably lower. Other possible markets for the company’s future expansion are Australia and South Africa, he says.

Following decades of expansion experience, Metro Cash & Carry has optimised its processes for entering a new market. For example, the opening of two new stores in Russia was completed in November 2001 after only a year of preparations. These included a feasibility study, construction of the stores, hiring and training staff and partnering with local suppliers. Metro is now geared up to move even more quickly in fulfilling its global expansion plans.