BR Research: Briefly familiarise us with your career path and also tell us about how the merger between Metro and House of Habib emerged.
David Boner: I have been around in this industry for the past 26 years. Of these, the past 16 years have been spent in Asia where I have worked in Singapore, Malaysia, Thailand, and in November 2008, I joined the Metro Group and arrived in Pakistan as the Operations Director.
At the time we had had two stores in operation and two more sites under construction; and a fifth location had just been secured for further development. So, from a growth perspective, we opened five stores in just 18 months from procuring licenses and approvals, securing the sites, construction, etc.
We then had had a period of consolidation because as you know, opening up the stores is only the beginning after which there is a whole journey. We kept our objectives very clearly and we had a competent pool of resources to progressively develop the business sustainable.
Around this time, we started deliberations with House of Habib to ascertain if there were synergies that we could develop with them. These talks lasted for quite some time and eventually culminated in the form of the merger that was approved on June 25, 2012.
Having secured the approvals from the Competition Commission of Pakistan, we decided that we would enter into a Management Agreement beforehand. So, our efforts began in earnest in February of this year and after the High Court's nod, we have just finalised our Business Plan for the merged entity. In terms of prospects, Pakistan is a very encouraging place despite the international economic doldrums and the political situation here, we remain convinced that Pakistan has bright economic prospects.
BRR: What, in your view, strengths has the merger added to the combined entity?
DB: This is one of the most complex mergers that I have been personally involved in. Under the agreement, the two companies which were each part of separate groups of companies have merged, and then de-merged to form an operating company and a property company. The majority share of 75 percent of the operating company is held by Metro, while 60 percent of the property business lies with Habib.
So, we at Metro are managing the operations side, which is where our core competencies lie, while the real estate is being managed by House of Habib where their strength and understanding of the local market is.
From a synergistic point of view, given the strength of House of Habib in the local market, this deal was a no-brainer. This is truly a merger, not an acquisition and we have incorporated best practices from both businesses in the combined entity. There were some sacrifices in the process; for example, we had to eliminate redundancies in IT, in Finance. But we have remained cognisant of the human element in all these changes and those that were let go received commensurate compensation to help them proceed with their careers unimpeded.
BRR: Tell us about the structure of the Metro Group and the strengths that it brings to this merger.
DB: Metro as a group is present in more than one market segment; local readers are familiar with the Metro Cash-n-Carry Division. Then there is Real which has a hyper market approach, Media Market and Saturn; which markets electrical appliances and Galeria Kaufhof which is a department store.
But, speaking only about the Cash-n-Carry business, we are currently present in 29 countries, while across the group we employ close to 115,000 people. So, we have very significant scale with 700 plus Cash-n-Carry outlets world-wide.
In terms of structure, we have a central control which provides the overall framework for operations. Then we have regional structures, with our region headquartered in Singapore. There is a very strong mix in terms of international perspective in our resource pool. When I arrived in Pakistan, among our board members were three Pakistani nationals; an Italian, a Briton, an Indonesian and a German national.
Since 2008, we have developed domestically as well and at the moment all but two of the board members are Pakistanis. Our target is to develop the local talent and in line with this objective we have replaced foreigners with Pakistani directors.
In terms of availability of competent human resources, this country is a gold mine. Pakistan has one of the world's least developed retail sectors, so looking for the right human resources can be challenging here. However, when you broaden the view across other industries, then, be it finance, retail or information technology, there are very competent personnel out there.
From among the personnel that have worked here, many have gone on to work in Kazakhstan, Germany, Singapore, Turkey, Vietnam, China, and other countries. This highlights our efforts to provide broad outlook in personnel development and that is where the sustainability lies in the long run. In my personal opinion, our current team is possibly the strongest in the business in this entire region and that is a primary reason for the trend of our resources being tapped for operations in other countries.
BRR: Other companies like HyperStar are also realising the immense potential in Pakistan's retail sector and competition is emerging. How do you view this competition and what impact do you expect on Metro Cash-n-Carry?
DB: First, let me point out that HyperStar is not a direct competitor for us. It has a consumer-driven model focused solely on retail. By comparison, our business is skewed to the B2B side; 65 percent of our turnover comes from B2B transactions with other retailers, kiryana stores, professional SCO, hotels, restaurants, etc.
Market expansion is not a question of if, but, when. In my view, other international players will enter the market; the question simply pertains to the timing of these entrants. To gauge the scalability, consider the example of Thailand which has a population of about 63 million. During my stint in that country, there were six key players in the Thai market including Tesco, Makro and Carrefour. The combined turnover of these players did not add up to that of Tesco in the United Kingdom. In the UK, there are a number of other competitors as well, while the population size is a comparable number.
Here in Pakistan, there is a population of about 190 million. The middle class is comprised of about 30 million people and it is growing fast so the outlook in terms of development is long term and the saturation point will be reached long after I have retired and gone. As small and medium enterprises enter the fray, the B2B focus of our business will yield progressively better dividends.
Perceptions about the country and its conditions also play a crucial role here. Once those perceptions improve, international players will be lining up to enter this market of immense promise. Security is a challenge, but from a commercial perspective governance and energy are equally crucial hurdles. On the bright side, based on my personal experiences I can tell you that Pakistan is one of the easiest countries for foreign investors to come into and operate.
BRR: How does Metro Cash-n-Carry facilitate businesses, in line with its focus on B2B operations?
DB: There are two streams of thought in terms of shopping for businesses. The first can be dubbed as the 'time is money' view whereby business managers do not want to spend time personally going to the Metro outlet to shop. The other approach is, 'it's my business, so I will make purchases for it myself'; and these are the people that will come into the store to make purchases.
While the latter are served by the store locations, for the former camp we provide direct delivery services. These services were already being provided by the Metro stores; the locations that were previously Makro will also begin to offer these services by the last quarter of this year. Besides this we also offer credit services for businesses so they do not have to make purchases on cash.
At our company, we follow what we have termed the Target Group Management Approach, whereby a senior manager is specifically responsible for developing the trade sector; likewise for the hotels/restaurants group and for professional businesses. The delivery side is also handled with a similar targeted approach. In other words, we are cognisant of the nuances and differences among the different kinds of customers that we serve and the infrastructure and processes needed to cater to these needs.