Supermarkets Make a Tryst with Record Sales on Independence Day

Top retail chains posted their highestever weekly sales in the six days to Independence Day, when heavy discount offers lured buyers to splurge on daily household products, apparels and consumer durables.

Retailers such as Future Group, Reliance Retail, Bharti Retail, RPG Group’s Spencer and K Raheja Corp’s HyperCITY — helped by active participation of several consumer product companies — offered deep discounts across product categories to push volumes at a time when consumer spending is slowing and there are fears of poor monsoon rains impacting demand.
“Consumers are looking at savings more than ever before,” said Rakesh Biyani, joint MD of the country’s largest retailer, Future Group, whose 164 Big Bazaar outlets across some 90 cities saw more than 8.1 million visitors during the week ended August 15. “We have been working to integrate our supply chain to bring down prices as far as possible.”
Several suppliers, including Coca-Cola, Britannia and Procter & Gamble, participated in special Independence week deals, helping retailers to offer higher discounts than before.
Darshana Shah, business head for marketing at HyperCITY, a hypermarket format run by Shoppers Stop, said increased vendor participation as well as entire malls going for sales helped pull in the crowds. “The sale was definitely better this year as we had stronger and bigger deals since market sentiment was soft,” she said. HyperCITY also increased its spend on marketing this year at around 2% of overall sales. During the week, Big Bazaar outlets sold more than 1.4 lakh packs of a combination of 5 kg of rice and sugar each with 5 litre of edible oil, and more than 1,500 tonnes of detergent. LED TVs, mixer-grinders and induction cookers were among the other top sellers at Big Bazaar, officials said.
Spencer’s Retail said its same-store sales increased 24% year-on-year during August 11-15, driven by beverages, health and beauty, bakery products and staples that saw over 30% sales growth. Sales of FMCG household products grew over 50% while liquor sales rose 30%, Sanjay Gupta, executive director (marketing & business development) at Spencer’s Retail, said.
Such discounting, however, reflects the escalating pressure on retailers, whose sales are slowing during non-discounted periods. “Because of the slowdown sentiment, consumers have been withholding purchases, so companies are trying to push volumes through discount seasons at retail chains,” said Mayank Shah, group product manager at Parle Products, the country’s largest biscuit maker.
But those volumes come at the cost of bottom lines, he added. Earlier this month, credit rating agency Fitch said same-store sales growth of retailers slipped across lifestyle and value-based formats in the quarter ended June, adding that it expects retailers to combat slowing sales by offering discounts.
“However, this may lead to an erosion of gross margins,” Fitch said, while revising the outlook for the Indian retail sector to negative from stable for the first half of this fiscal due to sustained decline in the discretionary spending ability. A slew of factors such as economic slowdown, deepening crisis in Europe, high food and fuel prices has impacted consumer sentiment in the country, slowing sales of everything from cars to carpets.
Some retailers use inflation as a marketing tool. A case in point is Bharti Retail’s “freedom from inflation” campaign at Easyday stores, which help people fight inflation by providing quality merchandise at low prices. Retailers such as Reliance Retail used the week to increase their customer base. Reliance introduced discount offers such as ‘double the difference’ price guarantees across various product categories.

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Twist in retail tale: Kiranas partner giants

MICROFINANCE PUSH

IT’S a nagging, almost decade-old doubt that has kept foreign direct investment (FDI) in retail at bay: will the entry of Big Retail hurt the six million kirana stores? As the nation grapples with the question, a series of interesting pilot projects are demonstrating how the giants and the dwarfs can co-exist, and even fuel each other’s growth, thanks to a little help from microfinance institutions (MFIs).

Biggies like Wal-Mart, Metro Cash & Carry and the Future Group have forged partnerships with microfinance and financial institutions to sell merchandise on credit to rural kiranas. The MFIs not only provide credit, but also double up as valuable intermediaries that collect orders from the kiranas, source the merchandise from big retailers and deliver it at the kirana’s doorstep. What’s more, the MFIs do not charge any interest on the credit extended to the kiranas. Instead, they receive a commission from the retailers, for whom this is a small price to pay in order to win new markets and grow faster.

While Metro has been running a pilot with SKS Microfinance in Hyderabad for a few months now, the Future Group has just inked a similar deal with SKS. Bharti Wal-Mart, an equal joint venture, has a partnership with Kotak Mahindra Bank for cards that offer ready credit to the kiranas. RPG-controlled Spencer’s Retail too is keen to explore such opportunities.
If these experiments click, it could enable large retailers to pry open vast rural markets, help kiranas become more efficient in their sourcing, give consumers the benefit of lower prices, and build a thriving retail ecosystem where the lambs can indeed sleep with the lions.

It might also soften the resistance to FDI in retail. If kiranas are empowered to source more effectively, they may be able to co-exist meaningfully with organised retail if and when FDI is opened up. Though foreign retailers are allowed to set up cash-and-carry formats, FDI is not allowed in supermarkets, etc.

“This will open up a completely new rural distribution model and help us in understanding rural consumers,” says Future Group CEO Kishore Biyani. “This is probably the first time the Indian retail sector is targeting the rural market in such a big and strategic way.”

Future Group has started to sell staples, dry groceries and FMCG products through SKS’s network to some kiranas in the North, including a few in the National Capital Region. It also plans to supply its bouquet of private label products through this network. ‘Partnership a win-win one’
IT’S a win-win partnership as we can use our sourcing strength and SKS’s huge network of kirana clients to supply products to them at competitive rates. Eventually, we can include other products as well,” says Biyani.

SKS provides interest-free working capital loan to its kirana clients. The kiranas use this to purchase their inventory from Metro and Future Group at wholesale prices. The loan amounts range from Rs 5,000 to Rs 25,000. SKS, in return, receives a fixed commission from Metro and Future Group for the total purchases a kirana makes.

“Kiranas access superior quality products at very reasonable prices, delivered right at their store, thereby increasing their productivity,” says SKS Microfinance COO MR Rao. SKS has 2.72 lakh kirana store owners as its customers (4% of its total of 68 lakh members). Industry estimates suggest that only 35% of the 6 million-odd kiranas in India are properly serviced by consumer goods companies and distributors. The remaining 65% is serviced by a multi-layered distribution network that is often inefficient, but still adds a substantial amount to the product cost.

German wholesaler Metro Cash and Carry India plans to scale up its Hyderabad pilot nationally soon. The company is also helping rural kiranas with tips on effective use of working capital and strategies to serve their catchments better. “We could have launched this as part of our CSR programme, but we chose to make it a part of our core business plan as the potential is huge,” says Metro Cash & Carry India director (customer management) Ajay Sheodaan.

Kotak Mahindra and Bharti Wal-Mart have rolled out a “business card” which offers credit to kiranas starting from Rs 8,000. The credit is free of interest for 14 days after the purchase and an interest rate of 1.5% per month is charged after that. Kiranas are now making transactions ranging from Rs 15,000 to Rs 1 lakh on this card.

Kotak Mahindra Bank executive VP and head (credit cards) Subrat Pani says the customer acceptance for this lowticket working capital funding is growing on a daily basis. “We have around 700 members from Amritsar and Chandigarh. Within six to seven months, we have been able to drive almost 9-10% of the total sales at Bharti Wal-Mart. This could potentially go up to 12% in the next three months,” he says.

Enthused by these initiatives, RPG Group vice-chairman Sanjiv Goenka says Spencer’s Retail will also study such possibilities. “Any new model which expands penetration is good for the industry,” he says.

However, Retailers Association of India CEO Kumar Rajagopalan responds cautiously. “The real potential for modern retail lies in the top 100 cities. Some companies may be experimenting on newer models, but we need to see how much business it can generate,” he says.

New retail players make the most of low-cost environment

LEADING brands and retailers may have slammed the brakes on their expansion drive, but new entrants are identifying the opportunities created by the slowdown to steer ahead in a lower-cost environment.

Overall, the store rental-revenue dynamics have improved. Real-estate costs, which were a critical factor for retail has turned favourable, as companies work out deals for existing and prospective properties. “Though sales may have dipped 5-10% for a lot of retailers, rentals have come down 35-40%. As a result, existing stores are now breaking even or becoming more profitable,” associate vice-presidentretail & consumer goods at Technopak, Baqar Naqvi, said. The revenue sharing model, which has positioned malls owners as partners, is also transforming into a key stimulus.

“Earlier, most franchisees would ask for minimum guarantees. These clauses are now out of the system, making expansion through franchising much easier. However, only companies with cash reserves will be able to seize the opportunities in a downturn.

Unfortunately, there are very few of this breed,” added Mr Naqvi. Home decor brand Rosebys, which has announced an expansion to 110 stores this fiscal, is a case in point. For new entrants, there are strong reasons to invest. Take for instance, the Jawad Business Group which franchises Papa John’s and recently launched American south-western casual-dining chain Chili’s. “When there are fewer brands hitting the market, vendors are more willing to indulge in hard negotiations over payment terms, as they are also on the lookout for business,” general manager, restaurant division, Tapan Vaidya, said.

The RPG Group, which operates Spencer’s chain, sees it as an opportune time to test the market for its lifestyle format Mera World. “The downturn not only gives us an opportunity to perfect the model but it is also easier to tie up with the right partners for our shop-inshop formats.

“Many of these brands may have opened standalone stores if the market was better,” Speciality Retail’s president, K Dasaratharaman, said. Mera World has partnered with Baccarose for perfumes, Just in Vogue for watches and Eternity for eyewear. Media costs, which play a key role in brand building have also become much more fluid today.

Economic Times, Sarah Jacob BANGALORE, sarah.jacob@timesgroup,com

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