Customers flock to modern retail chains for daily needs
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The demonetisation of high-value banknotes sparked a surge in sales for chain stores such as Big Bazaar and Reliance Fresh where cards are accepted as customers chose to save the little cash they had on their hands for emergencies.
The nature of purchases at these stores has also changed. Consumers are now buying daily consumption items such as fruits, vegetables and dairy and cutting back on discretionary spending because of the economic uncertainty.
“Earlier, we were able to predict what people would buy and plan accordingly. Now, we are working on the basis of a daily and weekly plan as we can’t predict anymore. About 95% of people’s attitude has changed and this has impacted the way in which they are buying,” said Kishore Biyani, chief executive of Future Group, the parent of Future Retail Ltd which operates Big Bazaar and EasyDay hypermarket and supermarket chains.
Modern retailers like Big Bazaar responded to the government’s demonetisation initiative by keeping their stores open till midnight following the announcement on 8 November. “For the benefit of customers, we are asking our stores to be open till 11:50 PM to help customers buy their daily needs,” tweeted Biyani at 9.29pm, about an hour after Prime Minister Narendra Modi made the announcement in a television address.
Customers are looking at supermarkets and hypermarkets as the one place where they can be assured of stability in terms of pricing and availability, especially at times of uncertainty like this, said Damodar Mall, chief executive, grocery, Reliance Retail Ltd, while explaining that the retailer has increased the availability of items such as staples, fruits and vegetables at its super and hypermarket chains of Reliance Fresh and Reliance Smart.
“The sales mix is changing in favour of essentials,” said Mall.
“I end up shopping for vegetables at the supermarket rather than the vegetable store because I can use my debit card there,” said Ajay Simon, 44, from Chennai. He said that his family has restricted spending to just the essentials at the large stores because their weekly expenses has increased as the local vegetable and fruit vendors are cheaper.
Following the demonetisation, sales at Future Group stores was up by 15% on an average across formats, on a week-on-week basis in the first week after the announcement. On a year-on-year basis, business was up by over 25%, according to data provided by a Future Group spokesperson, who attributed the increase to the acquisition of new customers who hadn’t yet visited chain stores across tier-I, II and III towns.
Moreover, the number of cash transactions has also reduced to about a tenth from the more than half of its overall billings in the past week.
“We do more than 200 million billings every year. Pre-demonetisation, cash transactions accounted for 54% of our business. Thus, more than 100 million are cash transactions,” said the spokesperson.
It's a similar story at Reliance Retail. “The ratio between cash and card has flipped. Earlier, two-third of our transactions were in cash and a third were non-cash. Now, two-third of our overall transactions are non-cash,” said Mall.
To be sure, modern trade retailers witnessed lower footfalls and a significant dip in cash sales in the first couple of days following the demonetisation announcement.
“This was especially true in smaller towns with a higher proportion of cash sales,” said a 16 November Nielsen report, which noted that footfalls and sales in the first 48 hours dropped between 20% and 80%. “However, for many stores, footfalls significantly increased over the weekend with 13 November clocking significant volumes,” said the report.
However, modern trade is still a relatively small part of the overall retail trading in India, accounting for less than 10% of the country’s Rs2.6 trillion packaged goods industry, which has seen its supply chain completely break down due to the cash shortage and business reduced by more than half in the traditional channels.
Moreover, the large chains are still largely an urban phenomenon with even the largest retailers like Future Group operate just about 1,400 stores in 250 cities and towns across India. In comparison, there are 9.6 million neighbourhood retail stores.
Preeti Zachariah in Bengaluru contributed to this story.