Food discounts lift sales for big retail

Food discounts lift sales for big retail
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First Published: Wed, Jul 02 2008. 12 20 AM IST
Updated: Wed, Jul 02 2008. 12 20 AM IST
Large modern Indian retailers, hobbled by strict foreign investment caps, political concerns and protests from small traders, are finding support from an unusual quarter: spiralling food prices.
With annual inflation rate at its highest in more than 13 years, more shoppers are switching to big food and grocery retailers, which have the muscle and the scale to keep prices lower, from small traders and vendors.
Only about 4% of the country’s retail industry is controlled by large retailers, compared with more than half in Malaysia, and the lion’s share of food and grocery is with small shops and vendors.
Faced with higher prices of vegetables, rice, cooking oil and other items, more consumers in India are opting for the relatively stable prices at modern stores, which are squeezing razor-thin margins on food to ring up more sales.
Pantaloon Retail India Ltd, the top listed retailer, recently offered a 20% discount on all food and grocery items at its Big Bazaar hypermarkets, and drew more shoppers to its 89 stores, chief executive Rajan Malhotra said.
In stores, Pantaloon pushed its higher-margin store labels covering a range of products from butter to lentils, and was able to offset the discount with larger volumes of sales as well as stronger margins from non-food items, he said.
India’s fragmented retail industry is estimated to be worth about $350 billion (Rs15.15 trillion) and is widely forecast to nearly double in size by 2015, with modern retail making up a fifth of sales. Small shops currently make up the bulk of India’s more than 15 million retail outlets. Indian rules ban foreign retailers from entering its market.
Rice, flour, fruits and vegetables are 20-30% cheaper on average in larger retail stores, according to a recent study by the Indian Council for Research on International Economic Relations (Icrier).
At Reliance Retail, a variety of promotions has helped draw more shoppers and higher spends, with store labels of staples and items such as instant noodles yielding higher margins. “When inflation is high, promotions are particularly relevant, as the average household is looking to stretch their budgets,” said Jai Bendre, an executive vice-president, at Reliance Retail.
“Because of our size we have amazing negotiating power with vendors, and on our own labels we are able to save on advertising and promotion expenses,” she said. Reliance Retail, a unit of Reliance Industries Ltd, operates convenience stores, supermarkets and hypermarkets.
India’s annual inflation rate, measured by the wholesale price index, jumped to 11.42 % in mid-June, and analysts expect it will remain in double digits until the end of the year.
With food prices on the boil, urban and rural Indian homes, that already spend an estimated 45-55 % of their income on food, are looking for ways to trim their shopping bills.
While no retailer has the critical mass for large economies of scale, several are already reaping the benefits of size. These include Pantaloon, discounter Subhiksha, Reliance Retail’s 600-plus Fresh stores, Aditya Birla Group’s 500-odd More stores, RPG Group’s 400 Spencer’s stores, and discounter Vishal Retail’s 100 stores.
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First Published: Wed, Jul 02 2008. 12 20 AM IST
More Topics: Food | Retail | Inflation | Price | Corporate News |