Chennai: Wholesale merchants in Chennai, India’s fifth largest market for fruit and vegetables, have lowered the profit margins on the produce they sell, in a bid to fight large, organized retailers such as Reliance Fresh, who are buying directly from farmers and selling goods at reduced rates.
The decision by wholesale vendors will help small retailers, who buy fruit and vegetables from these vendors, to compete with the rates offered by the large retailers to consumers.
“This will help us fight the competition”, said V.R. Soundrarajan, president of Koyambedu Market Vegetables Merchants Association. “We (wholesale vendors) decided to reduce our margins from 5% to 2%”.
Wholesale dealers and small retailers in Tamil Nadu recently closed their operations for a day to protest against the entry of organized retailing in the state. They claimed these large corporations with huge financial muscle would put them out of business.
Pattali Makkal Katchi, an ally of the DMK-led government in the state, and two communist parties supported the agitation by the traders and small retailers.
The traders association has been in existence for almost six decades, much before the Koyambedu market, a wholesale trading centre that was created by the state government, was moved to the outskirts of the city.
The decisions taken by the association is upheld by all the members based on oral assurances and there are no circulars involved, said S. Srinivasan, president of Chennai Fruits Commission Agents Association, which was set up in 1946.
As the prices of vegetables that are traded in Koyambedu wholesale market in Chennai varies, based on demand and supply, the effect on prices because of a 3% cut in profit margins is not exactly determinable.
However, on an average, for onions, the price reduction has been Rs3 per kg, said Soundrarajan. Traders had earlier claimed their business has dropped by one third after the entry of Reliance Industries Ltd’s stores in Chennai.
Now, some say, they were able to arrest the decline in volume with a reduction in profit margins.
While the margin is 5% for vegetable dealers, it is 10% for most fruits because of higher sale price per carton.
The mode of payment also varies between vegetables and fruits. A large proportion of the vegetable trade takes place as ‘cash and carry.’ Almost 100% of the trade in fruits is on credit, said Srinivasan, who has a large fruit shop in the Koyambedu market with more than 50 employed.
“Vegetable vendors would be able to reduce the margins as they deal mostly under ‘cash and carry’ format, we (fruits) would find it difficult to do this as our margins would also take into account the credit given to buyers”, said Srinivasan.
In volume terms, around 1,500 tonnes of fruits are traded every day, and vegetables are at nearly twice that.