Inflation, in many ways, is a price we pay for development. It is now a global phenomenon wherein the spectacular growth in emerging economies has pumped up commodity prices for the last couple of years. Asset classes have become more expensive and in India the cost of doing business has climbed steadily in the last one year. Whether it is real estate, transportation, energy or wage costs, everything has been on an upward spiral. Now with this rampant inflation, consumers are feeling the pinch of rising prices.
Since October, when prices started to move up significantly, basic food items like edible oil, rice and wheat cost anywhere between 20 per cent and 30 per cent more. When prices increase, consumers decrease savings and at the same time try to maintain their total expenditure at existing levels. Under such circumstances, the first thing customers cut back on is high-ticket impulsive purchases. With rising prices and inflation, we are noticing a slower growth in cellphone purchases and this could be possibly due to many consumers deciding against upgrading their phones.
Another noticeable trend during inflation is that customers move towards value retailing formats. Research in developed markets has shown that large discount chains contribute towards decreasing inflation rates by anywhere between 50 and 100 basis points (half and one percentage point). Since the end of last year, when prices started to go up significantly, we have noticed customers moving towards our value retail and discount formats like Big Bazaar.
Inflation cannot be controlled by just the government or one particular body or institution. Everyone needs to come together to control inflation. As retailers, we are taking a number of steps to contain the impact of inflation on our customers. We are working on a new initiative that will allow customers to earn a significant discount on their food purchase, where the impact of inflation is highest; whenever they also purchase a certain amount of non-food products like apparel and general merchandise from our stores. This cross-selling will help customers to somewhat maintain their monthly budgets at existing levels.
There are certain negative trends – like large consumer goods companies decreasing the quantity or packet size of products while keeping prices constant. That definitely does not help customers and one hopes more will be done by companies to mitigate the effect of inflation on consumers.
(The writer is CEO of Future Group, which owns Big Bazaar and Pantaloons and is the country’s biggest organised retailing chain)