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Consumers buy big to beat inflation

Consumers buy big to beat inflation

Mumbai: A small band of Indian consumers harassed by high inflation are coming round to the view that big can be beautiful.

Take the case of Parshuram Hunnarkar, a 38-year-old living in Dharavi, Asia’s largest slum. Hunnarkar and his nephew Rakesh were recently seen guarding four large trolleys stacked with close to 500kg of rice, 100 litres of cooking oil, a 6kg pack of detergent and large quantities of wheat and pulses at a Big Bazaar outlet in central Mumbai.

These purchases were far more than what a normal family needs every month—and they were not for a single family.

Hunnarkar visited the hypermarket with a group of 16 people, which included his cousins, aunts and uncles, to take advantage of the special offers being offered at Big Bazaar that day as part of an annual promotion. Stocking for future needs helps families build inventory before prices rise further.

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“Shopping together works out cheaper for us as we can avail of the special offers," he explained. For example, Hunnarakar bought a 4kg pack of Tide detergent for 222, and got another 1kg free as part of a special offer. He planned to split the detergent among two families. Such strategic bulk buying makes little sense when just one family is involved.

“A group-buying phenomenon is emerging as people buy in large quantities," says Kishore Biyani, managing director, Pantaloon Retail (India) Ltd, the parent company for Future Value Retail Ltd, which runs the Big Bazaar and Food Bazaar chains.

Biyani compares such strategic buying with what happens in casinos, where players try to beat the dealer.

These initial indications of bulk buying by Indian families to beat inflation are totally at odds with the sachet revolution of the 1980s and beyond, when companies selling everything from shampoos to telecom talk-time sold bite-sized versions of their products to families at the bottom of the income pyramid, often in rural markets. Bulk buying by consumers such as Hunnarkar is more likely to take place among the lower middle-class and poor in urban areas with access to large retail chains who use their purchasing muscle to get good deals from consumer companies.

“The sachet business and big-pack business philosophy is different," says Pinakiranjan Mishra, a partner in the retail and consumer practice of audit and consulting firm Ernst and Young, while explaining that kirana stores selling sachets are frequented by people who are daily-wage earners or others with low incomes who have a smaller daily outlay for consumer packaged goods, while it is the modern consumer in modern retail outlets who can afford large packs.

Biyani describes this demographic group as India-II, typically with service jobs in the unorganized sector such as maids or drivers. “We know that inflation is hurting India-II," says the retailer. The annual event that Big Bazaar brands as Sabse Sasta Din—or the cheapest days—saw a drop in interest from India-II this year, from 40% of total sales for the event a year ago to 30% of the total sales of approximately 500 crore this year.

Group buying is not new to India. “Some communities, such as the Gujaratis, have always done this. This is now happening more as families get together, buildings get together and buy. At the start of the year they do it for grains such as wheat and rice. At the start of the month they do it for their monthly shopping baskets and break it up," said Ireena Vittal, partner at consulting firm Mckinsey and Co.

To be sure, other retailers say they haven’t yet seen clear signs that bulk buying by groups is picking up.

Retailers such Shoppers Stop Ltd’s hypermarket format HyperCity or Trent Ltd’s Star Bazaar have close to 10 stores each and are known to cater to a more affluent customer. “It could be happening but we are too small to pick up the trend right now," says the head of one of the Mumbai-headquartered hypermarket chains, who did not want to be named because of company policy.

On the other hand, scale allows the 147 stores in the Big Bazaar chain and the 197-strong Food Bazaar chain to negotiate low prices with vendors for its special promotional events.

Persistently high inflation has dented consumer confidence. The latest global consumer confidence survey by research firm Nielson Co. suggests that Indians are likely to cope with rising living costs by cutting back spending on new clothes, out-of-home entertainment and utilities such as power and cooking gas.

Yet, the damage at the top end of the consumer market seems modest. Car sales in January continued to be on the fast track, according to data released by various automobile companies. Arvind Singhal, chairman of retail consultancy Technopak Advisors, told Mint in an earlier interview that he expects a quarter of the country’s 1.2 billion people to increase discretionary spending between 25-30% this year, splurging on everything from jewellery to cars.

Damodar Mall, director of food strategy at Future Group, the holding company of Pantaloon Retail and other group firms, said the modern consumer is value-conscious rather than brand conscious, preferring deals and offers to brand names.

Besides savings on purchase of large packs, double-digit inflation is the big driver of bulk purchases. “Rice and oil is much more expensive now than in August," says Hunnarkar, who feels that groceries will become more expensive over the year and hence has bought supplies for six-eight months. He lives in a 150 sq. ft room with his wife and two children but the small size of the dwelling has not deterred him from stocking up as insurance against future price hikes in essentials.

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