German wholesaler METRO: 'In India, you are only as successful as the partners you work with'.

German wholesaler METRO, known in the Netherlands for Makro, has set up 27 branches in India in 17 years. In addition, METRO is initiator of a special program that modernizes local neighborhood supermarkets, kiranas, in order to survive competition with the big chains and e-commerce platforms. "Our first steps into the Indian market did not go very smoothly at all," explains Mark Alexander Friedrich, Head of International Affairs for METRO. "We had considerably underestimated the differences with Europe and our concept did not quite fit in with the Indian market."

A modernized Kirana by METRO

Mark Alexander Friedrich - Head of International Affairs for METRO

METRO began its India adventure optimistically, when the company was the first foreign wholesaler to enter the market in 2003. "We saw a huge potential for our concept in India, specifically because the middle class in the country is growing so fast, and decided to take the plunge for that reason. But we hadn't taken into account the large regional differences in the country, the obstacles in the supply chains and the challenges in terms of infrastructure. In addition, the Indian government was concerned that we might pose a threat to the small supermarkets in the country. So we quickly came to the conclusion that we needed to prove that we were going to support the small independent stores, not undermine them, by investing heavily in them. Only by helping our partners grow could we ourselves become successful in India."

Building your own Indian supply chain

One of the first steps METRO took was to adjust the offerings in its various stores. "We focused in our early years on opening stores in different Indian states, says Friedrich. "That involved a carefully curated assortment, as customer demand varies considerably from region to region and people like to buy local. We therefore had to expand our list of suppliers in a short period of time."

Here, too, METRO was faced with a different system than we know in Europe. "Farmers here are used to selling their produce to a middleman, who then resells it to different stores and supermarkets. But that often does not improve the quality. Since we have the hospitality industry and other large companies as customers, we want to make sure we can offer the best of the best, and that means taking matters into your own hands."

The company started special collection centers where farmers themselves could sell their produce to wholesalers. "We now have 5 of these centers in 4 different states and it makes a significant difference in the quality and freshness of the fruits and vegetables that are in our stores," Friedrich explains. "It is also a better deal for the farmers, they earn more from their produce because there is no longer a middleman and they have our payment in the same day."

Still, farmers had to get used to METRO's methods at first. "It took a while for the influx to get going properly. The farmers were used to working with specific middlemen and didn't want to let go of that right away to engage with us. But once one or two farmers joined us and the rest of the community saw for themselves the benefits of working together, they were converted. Indians can adapt at lightning speed."

One of the 27 METRO stores in India, this branch is in Ahmedabad

Strong Indian partners are key to success 

At the same time, METRO had to convince the Indian government that they didn't want to dominate the Indian market and thereby shut out all the local convenience stores, the kiranas. "Besides the hospitality industry, the kiranas are one of the three most important customers for METRO in India," Friedrich says. "We therefore have absolutely no interest in pricing them out of the market. As with our suppliers, we started looking for ways to support them and make their operations more efficient."

Meanwhile, with the "Smart Kirana" program, the company has already modernized some 2,000 kiranas in various ways. "We remodel the stores so that they have a more modern look and feel and consumers can see the products better, but also help with digitalization of accounting, inventory and payments. Thus, these neighborhood grocery stores are better adapted to the rapid digitization of Indian life."

According to Friedrich, these initiatives have allowed METRO to prove to the Indian government that they do what they promise. "Through these initiatives we have been able to build a good relationship with the Indian government over the years. Society and certainly politics in India is very hierarchical, so you don't just suddenly sit down with everyone. The local politicians are very involved in their constituencies and know what's going on, so they heard about our initiatives and how they positively influenced the communities. Of course, as politicians they wanted to be part of that and that opened the door for us."

Without e-commerce branch, you don't compete in India

Meanwhile, the company is an established name in India with over a million customers and focuses on the changing needs of the Indian consumer. "In India, you can't make a long term plan for the next ten years. Developments in this country are so rapid and we have learned to adapt to that as a company," Friedrich says. "Many of our current customers are busy entrepreneurs who want tasks such as sourcing products for their company to take up less time. To meet this desire, we built an e-commerce platform, which has been in successful use for almost a year now."

Setting up METRO's e-commerce platform in India went very smoothly. "We are not affected by strict legislation because we do not sell directly to the end customer," Friedrich explains.

In fact, currently in India it is not allowed to sell online b2c as a foreign company. Nevertheless, Friedrich recommends every sales company in India to have an online presence. "We see that the omnichannel approach is very successful in India. So give your Indian customers the option to already be able to browse the products online and then make the actual purchase in the physical store. So we introduced our new app 'METRO Wholesale', which allows our customers to order anytime, anywhere. They then pick up their groceries at one of our locations. It shows that if you can't be found online in India, you are out of the game."

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The guide to setting up successful sales in India

In this free guide we offer you insight into the steps that you need to take to successfully start and grow your sales in India. From preparing your first export shipment to India to setting up a solid after sales service.

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Differences in the way of doing business among Indian states

India is almost as large as the European Union and has more than twice as many inhabitants. No wonder, then, that there are major differences between the various Indian states in terms of language, demographics, politics and economic growth. For a successful start-up in India, it is therefore important to take these differences into account when drawing up a business plan. Because what works in Gujarat does not automatically work in West Bengal.

Image via Harvard Business Review

The regional differences among Indian states

For a European company to succeed in India, you must be aware of the country's vast regional differences. India is a fragmented market with large, and often underestimated, regional differences in language, culture, infrastructure and wealth, all of which affect the regional business culture.

Indian states are therefore better compared to individual countries than to, say, the Dutch provinces. Indeed, India's most populous state, Uttar Pradesh, has as many inhabitants as Brazil, and the southern state of Tamil Nadu has an economy as large as that of Hungary. 

There are also large demographic differences between Indian states. For example, southern India is older, has more to spend and is more educated than the rest of the country. Northern India, on the other hand, is younger and relatively poor.

North Indians primarily speak Hindi, while South Indians prefer to communicate in English or in their regional state language, such as Kannada or Malayalam. The German wholesaler METRO, better known in the Netherlands as Makro, found out after their start in India that there are big differences between the groceries that customers in a certain region put in their shopping cart and adjusted the assortment accordingly by adding more local products. Logical really, Finns also have different preferences than Spaniards.

"METRO found out that there are big differences between the groceries that customers in different regions in India put in their shopping cart."

- Mark Alexander Friedrich, Head of International Affairs for METRO

Do not make one business plan for all of India

For a successful start in India, thorough market research is a must. Regional differences are not only obstacles, but can also work in your favor depending on your sector and product.

The southwestern states, such as Maharashtra and Karnataka, are a suitable base for technical sectors such as automotive, engineering, as well as outsourcing IT and Research & Development teams.

Northern states such as Punjab and Haryana, among others, have thriving agricultural sectors, creating opportunities for food processing and renewable energy industries.

Starting in the right regions is also essential for selling your product in India. European products almost always fall in the highest market segment in India, so it is smart to start in the regions where people have sufficient income and there is real demand for a more exclusive, expensive product.

"Approaching India as one country by working with only one distributor or partner is one of the most common mistakes European companies make in India," says Klaus Maier, CEO of Maier + Vidorno, IndiaConnected's partner in India.

"In Europe, you wouldn't ask an Italian distributor to set up your network in Norway either. An Indian partner or distributor operating in a specific state has a good network only there and will not succeed in successfully expanding sales to other states. Therefore, those who take India seriously start with about four dedicated, local managers or distributors who understand your product and the regional market well. With them, the market can be mapped and the logistics network set up, one of the biggest challenges for international companies in India. In this way, the Indian market can be conquered step by step, successfully." 

Selling successfully in India with the right strategy

For anyone looking to conquer the Indian market, IndiaConnected has put together a special guide in which we offer you insight into the steps to take to successfully start and grow your sales in India.

From preparing your first export shipment to India to setting up a solid after sales service, we guide and advise throughout your India journey.

Market entry in India: do you make the best start with a dealer, distributor or agent?

India offers a lot of interesting opportunities for European companies, but doing business in this country also involves specific challenges. For a successful market entry, having a local partner with the necessary market knowledge is a necessity. But how do you know whether to go with a dealer, distributor, agent or partner? We explain the different options for you.

What does an agent do?

An agent is your company's representative in India, but does not take ownership of the goods for the sale of your products. An agent generally receives a commission for the number of products sold or based on the contracts he or she manages to close.

In many cases, the agent does not work exclusively for a foreign client, as this can lead to permanent establishment. If you do not want your agent to also work for other companies, for example because you want to protect your intellectual property, you should set up your own entity in India where the agent will be employed. This way you will not run the risk of permanent establishment and the associated high fines.

One advantage of working with an agent, is that you always retain ownership of your product and sell it directly to the Indian customer rather than to a distributor. In addition, agents often have a good understanding of your industry and in which segment of the market your product will resonate best, as they also work for other companies within the same industry.

Working with an agent does mean that many tasks remain with the European company, such as import management, handling of insurance claims, international logistics, transfer pricing, registrations, etc. This is because the agent is only responsible for warehousing, sales, logistics inside India and billing.

What does a distributor do?

A distributor buys your goods to then sell to wholesalers, retailers or consumers in the region where they operate in India. Distributors almost always work with a portfolio of different companies in various industries.

Distributors can offer both complementary and competitive products and usually provide after-sales service. They make money by adding a margin to product prices.

Distributors often offer broader service than agents, such as after-sales, replacement service and technical support, and have good knowledge of logistics in the country. 

There are three things to keep in mind when you plan to look for a suitable distributor:

1. First, no single distributor can offer you nationwide coverage in India; the country is too large and diverse for that. Therefore, choose your first distributor in the most important location/Indian state for you. Once your business there is up and running, you can start looking at distributors in other key regions of the country to further expand your business.

2. Point two is the distributor's focus on your product. Because distributors work with multiple companies and products, you are not automatically the priority. European products often fall into the high, expensive segment in India, which means fewer of them are sold and lower revenue for the distributor. European companies therefore often run into the problem that the distributor puts very little time and effort into their product and more into products that go out the door en masse.

3. Finally, European companies should keep in mind that marketing is not necessarily a task the Indian distributor can take on. Especially if you offer a high-end or technical product that requires a lot of knowledge of your sector and product. Since distributors often operate in different sectors, it is advisable not to rely entirely on your distributor's knowledge for your marketing, but to work with experts in the field. Read more about Setting up a successful Indian marketing strategy.

What does a dealer do?

A dealer falls in between a distributor and agent. They are someone who buys a product for their company, stocks it and then sells it to the customer. They are often seen as the middleman between the distributor and the customer and act as authorized sellers of specific goods in a particular industry.

A dealer, unlike a distributor, does have the technical knowledge to properly promote and sell your product. A dealer often adds an extra, high margin to the price of your product, which can cause you to price yourself out of the market. We therefore recommend that companies look for a suitable agent or distributor for their first steps on the Indian market. 

Can I do it myself?

Starting your own business without a partner in India is also an option, although the most challenging one. It means that you have to set up your own company, logistics, warehousing and sales in India right from the start. Not to mention all the non-core business elements that you need to arrange such as permits, taxes, regulations regarding staff, etc. It is extremely difficult to do this without local knowledge of the market and doing business in India in general. 

A safe way to start your own business in India is through the business incubator. The only thing you have to do is put together your sales team in India and IndiaConnected does the rest. Your employees will be put on our payroll and the legal liability and responsibility will also rest with us. In addition, we arrange everything from back office to performance reviews and we have five physical locations where we can accommodate your team.