Mumbai: Basic food items such as rice, flour, pulses, fruits and vegetables are 30% cheaper on an average in organized retail stores than at kirana, or small, stores or at street vendors, according to a new study. Organized retailers are able to shield consumers from the rising food prices by buying large volumes at low cost and selling at low margins, says the study, conducted by Washington-based think tank International Food Policy Research Institute (IFPRI) and the Michigan State University under their Markets in Asia project.
The study, conducted in five big cities, including New Delhi, Bangalore and Hyderabad, found that prices could be as much as 70% cheaper for fruits and vegetables, 50% for milk, and as little as 5-7% for branded flour in supermarkets.
Within reach: A Reliance Fresh store in Noida. Large retailers have said they will squeeze margins, go further back in the supply chain and do more promotions to counter soaring inflation. (Photo: Harikrishna Katragadda/ Mint)
Large retailers have said they will squeeze margins, go further back in the supply chain and do more promotions to counter soaring inflation. While inflation has stayed above 7% in recent weeks, prices of 30 essential commodities rose 5.27% in the year ended March 2008, against 3.64% in the previous year, according to government figures submitted in Parliament.
Big Bazaar, the 75-store hypermarket chain from India’s largest listed retailer, Pantaloon Retail (India) Ltd, has announced a 20% discount on essential food products.
Vishal Megamart, the 100- store discount chain from Vishal Retail Ltd, has said it will reduce margins to 5-7% on average food products from 5-25%.
Spencers, a retail chain from Spencers Retail Ltd, is also running more promotions on essential products.
The study, Opening the Box, found cucumbers sold for Rs2.25 a kg in a New Delhi supermarket and for Rs6-8 a kg at street stalls last week. Similar results came in from other cities too, said Ashok Gulati, co-author of the study and director in Asia for IFPRI. “We found that 60-70% of the price formation happened between the farmer and the consumer,” he said, referring to the commissions of several layers of middlemen that drove up the prices.
“There is a perception that organized retail is only for the rich. But the poor get a raw deal because they source from street vendors. The question for large retailers is why can they not attract the bottom 40% people,” said Gulati, who authored the study along with Thomas Reardon of Michigan State University.
Retailers such as Aditya Birla Retail Ltd have said they will look to renegotiate contracts with vendors, while some others have said they will tie up with suppliers rather than sourcing from wholesalers.
Gulati said the food price rise could ease because a good crop is expected by June.
Gulati and Reardon had earlier conducted a study The Rise of Supermarkets and Their Development Implications. Their findings will be part of the government-mandated study on the impact of organized retail on small retailers, conducted by the Indian Council for Research on International Economic Relations.