Retailers brace for inflation war
Struggling to maintain profitability, retailers are changing their brand mix, introducing better offers and negotiating hard with suppliers, reports Saurabh Turakhia.Updated: Jun 14, 2008 02:34 IST
The retail revolution is facing a party spoiler — inflation. At an alarming 8.75 per cent, inflation has hit a seven-year high, and it’s hurting organised retail in a number of ways — rising logistics costs, falling demand, squeezed margins and declining footfalls.
Struggling to maintain profitability, retailers are changing their brand mix, introducing better offers and negotiating hard with suppliers.
They are also trying to promote in-house brands, which are priced lower than the others.
Kishore Biyani, CEO of Future Group, which runs the Big Bazaar chain, said: “In inflationary times, people downgrade. For example, if they normally buy branded rice, they shift to loosely sold rice. For us, the problem lies in costs like logistics and freight. We try to manage with better efficiencies.” Biyani claimed that neither margins nor sales have been affected so far.
Shoppers’ Stop is dealing with inflation and falling footfalls by trying to convert more visitors to its stores into customers.
Govind Shrikhande, customer care associate and CEO of Shoppers’ Stop, said: “Although sales have not yet been affected, footfalls have declined by 10 to 12 per cent. We are trying to raise conversion rates and work out a better brand mix. We may also look at lowering costs by cutting out extra travel and workforce.”
Mohit Khattar, president (marketing) of the Subhiksha chain, said they are pushing their private labels, which are 20 to 25 per cent cheaper than others. He accepted that margins, already wafer-thin, are under pressure.
Most players are banking on promotional offers to boost sales in the badly-hit food and grocery sections. Spencer’s tried it but, despite this, said a company official on condition of anonymity, margins fell by about 5 per cent.
Consumers too are making wise adjustments.
Sushila Mohta, a Mumbai resident, said: “For products like oil, ghee and milk, I stick to reputed brands, but not so for a commodities like sugar as you can tell visually tell the better quality ones from the rest.”
Experts are worried that the fuel price hike will add to retailers’ woes. R Sriram, co-founder of Next Practice Retail, said: “People are careful about their purchases now. Retailers are responding by offering gift vouchers or discounts for food and groceries on purchases of other items.”