Kiranas key to service breadth of Indian consumers, says Kishore Biyani. But big, organized bazaars are cheaper

01 Dec,2011

By Sarah Jacob & Sagar Malviya

 

Ram Agarwal, a kirana store owner at Kolkata’s Salt Lake area, every fortnight walks up to competition in the locality-in his case Big Bazaar and Spencer’s Retail outlets-to spy on their product prices. Without surprise, lower prices greet him at every visit.

 

“The kind of deals these retailers provide in some products is impossible to match,” says Mr Agarwal, who has been running his shop, Radhe Shyam, for 24 years now. But he does match the retail goliaths when it comes to small pack sizes, which makes up the core of his sales basket.

 

Mr Agarwal knows what opposition parties seem to ignore while opposing the government decision to allow 51% foreign investment in food and grocery retail-that modern retail helps consumers save their precious pennies amidst relentless rise in prices all around. The Economic Times visited popular kirana stores across Kolkata, Gurgaon, Delhi, Mumbai, Bengaluru, Hyderabad and Chennai to compare their prices of day-to-day items with big retail chains in their cities. Modern retail won hands down.

 

In branded items such as detergents, wheat flour and edible oil, modern trade prices were 4-20% lower than general trade, which primarily sold them on MRP. And in unbranded staples such as sugar and onions, larger stores were cheaper anywhere between 10-35% in different cities. Take the case of onion.

 

In Bengaluru, Aishwarya department store sells it for Rs 20 per kg, while Aditya Birla Retail’s More on the same road charges Rs 16.90. In Chennai, Star Bazaar, a hypermarket chain run by Tata’s Trent in a franchise agreement with UK’s Tesco, sells onion at Rs 18.50/kg, but at Jyothi kirana at T Nagar it costs Rs 24. The reason for this, say big retailers, is that they are able to cut through various levels of middlemen while sourcing. Also, these chains can bargain for lower prices with manufacturers because of their large purchase orders and pass on the savings to the consumer.

 

“Modern retail generates up to 10% of the sales for consumer goods companies and can source products at lower prices,” says Mr Kishore Biyani, chairman, Future Group. He says that a big retail outlet, on an average, stocks up to 60,000 stock keeping units across categories, while kiranas store up to 4,000 SKUs.

 

Does this mean modern retail will ultimately drive mom-and-pop stores out of business? No. Mr Biyani feels that kiranas are essential to service the breadth of Indian consumers. Analysts agree that consumers need both the formats, to always have an option to choose between the convenience of a neighbourhood store and value deals of a big retailer. They say consumers will always prefer aroundthe-corner kiranas for low-volume purchases.

 

“Kiranas deal with consumer goods brands in low volumes. Since these firms do not share good margins, kiranas make it up by charging the MRP without discount,” says Mr Anand Ramanathan, associate director at management consultancy KPMG. Organised retailers, however, have to make it worth the consumer’s while to drive out, brave traffic and parking hassles and shopping queues. This is where their unique selling point of low prices comes in.

 

“To draw consumers, retailers squeeze suppliers and ensure efficiency in categories that drive footfalls. They balance it out by enjoying higher margins in categories where impulse buying is high,” says Mr Ramanathan.

 

As the table suggests, organised chains retail at lower prices even at a time when food inflation hovers at 9%. “It is all about offering consumers a hedge against rising costs,” says Aditya Birla Retail CEO Mr Thomas Varghese.

 

For its Bengaluru stores, More sources half the produce directly from farmers and the remainder from traditional mandis or markets. “When the cost of procurement increases, kiranas raise prices. But we take a hit on margins and put pressure on the procurement channel instead,” says Mr Varghese.

 

Experts say big retailers’ ability to offer lower prices will increase when international retailers open hundreds of stores and build backend infrastructure. “FDI in retail can, to some extent, compress the huge difference between the farm or factory gate prices and consumer prices in India, benefiting both producers and final consumers,” says Mr KT Chacko, director at IIFT.

 

(With inputs from Writankar Mukherjee, Ratna Bhushan, Madhvi Sally, Jayashree Bhosale, Sangeetha Kandavel, Deepika Amirapu and PK Krishnakumar)

 

 

Source:The Economic Times
Copyright © 2011, Bennett, Coleman & Co. Ltd. All Rights Reserved

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4 responses to “Kiranas key to service breadth of Indian consumers, says Kishore Biyani. But big, organized bazaars are cheaper”

  1. Lavanya says:

    I am a regular customer of Star Bazaar and I feel they offer really good quality products at affordable prices. The best part about shopping at these retail outlets is the convenience they offer. One can avail everything one needs under one roof. No need to go from store to store in search of products.

  2. Ecochem says:

    Retail Vendors & Middleman are milking farmers & end consumers, We pay Rs.2-4/ltr extra on AMUL MRP prices, Milk gets adulterated in supply chain, Vegetable vendor make us pay 20 times more, then what was paid to farmer + You lose on weighing balance cheating. Raddipaper wala cheats you with his old balance by min.40% weight, Shopkeeper siphons off the freebies, Soft drink bottle are charged Rs.2-5/bottle extra for ‘cooling’ charges… so many stories of consumer fleecing at every end & corner of country, is this “Ram Rajiya”??

    Do you still want to be fleeced by your brothers & sisters?

  3. Vijaya Govil says:

    It is a myth that FDI will be good for the country.The biggest advantage the small kirana stores enjoy is that they know their customers and enjoy a personal rapport with the customers.and extend credit to them without any guarantees.The Supermarkets do not do this.Kirana Stores develop a personal goodwill with clients. Superstores are impersonal.It is a myth that Superstores due to bulk purchase offer lower prices.General experience has been that the Superstores also charge on MRP on branded skus but make a killing on unbranded items, SHOPPERS STOP for example.Superstores are not quality conscious and are not customer friendly.Superstores are averse and hostile to customer complaints. THE NEIGHBOURHOOD KIRANA WALA WILL FOREVER BE INDISPENSABLE.FDI in multi brand retail is the resurrection of EAST INDIA COMPANY

  4. Rajneesh Goel says:

    Retailors donot charge for poly bag and offer free home delivery. Big Bazaar charges for poly bags.. Be carefull.

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