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Footfalls aren't falling

Soaring inflation hasn’t quite transformed mall rats into house mice—not yet.

Anusha Subramanian | Print Edition: July 27, 2008

Last fortnight, Noel Tata, Managing Director, Trent Ltd, flagged off its 4th hypermarket format, a Star Bazaar flagship store, in suburban Mumbai. This is the second such store in Mumbai.

Wooing them back: Deals help consumers tide over inflation
Wooing them back: Deals help consumers tide over inflation
Spread over 75,000 sq. ft, the store will stock everything from essentials to niche items like exotic cuisines at an international food section, a live bakery and a deli section. The Tata company’s Star Bazaar is, doubtless, yet another gleaming temple of modern-day India. Yet, at a time when inflation is raging and consumer sentiment isn’t at its zenith, the timing of the launch could be questioned. Tata, for his part, doesn’t see any cause for shilly-shallying. “It is not risky to open a store in this category of products and in a format that is really trying to bring value to the customer.

Our aim is to give the customer the best quality at the lowest possible price and, therefore, it’s possibly the best time for us when the customers are also looking for the best deals on offer,” Tata told BT at the launch event.

To be sure, Tata isn’t the only high priest of organised retailing who doesn’t fear a fall in footfalls in a high-inflation, high-interest rate regime. As R. Subramanian, MD, Subhiksha and one of the pioneers in organised retail in India, points out: “We are basically into essentials retailing; since people are not going to stop eating, we don’t see our sales dipping.

In fact, footfalls have gone up because customers today are looking for discounts more than ever before. We operate in an everyday-low-price format—this means we sell all items at a fixed discount to MRP at all times and our consumers get reliably lowest prices always.”

Gaurav Modwel, Director, Wadhwan Food Retail (WFRL), which owns the Spinach chain of neighbourhood grocery stores, adds: “The impact of inflation on neighbourhood or convenience stores is less. We have not seen a fall in footfalls in our stores and, in fact, are seeing an increase in sales.” WFRL also owns other store brands such as Sangam Direct, S. Mart and Sabka Bazaar. Modwel estimates that three-fourths of his customer base is “still buying the products that they have always bought without cutting down their budgets”.

 
 “It’s possibly the best time for us when the customers are also looking for the best deals on offer” - Noel Tata MD, Trent Ltd

Yet, it isn’t as if anybody and everybody hawking essentials are going to be in clover. At a time when purse-strings are being tightened, consumers will tend to flock to outlets that offer the best for the least. That’s why, every retailer worth his stock is pushing hard with innovative promotions.

For instance, cross-category promotions have become a rage, with discounts being offered on grocery purchases that are redeemable against purchase of apparel and household products. Lifestyle retail stores such as Pantaloon, Lifestyle and Globus are introducing a slew of schemes to woo customers. Globus has been sending SMSes to customers that declare: “Beat inflation in style. Get the Best Buy prices and Buy One, Get One Free schemes.”

If consumers are reeling under cost pressures, so are retailers. As Kishore Biyani, Chairman of Future Group that owns such retail brands as Pantaloon and Big Bazaar says, the biggest concern for retailers is the increasing cost of doing business (which includes mainly high property prices and financing costs).

 
 “We have not seen a fall in footfalls in our stores and in fact are seeing an increase in sales” - Gaurav Modwel, Director, WFRL
In such climes, there’s little option but to take a closer look at one’s cost structure, as passing on costs to the consumer may not be a competitive solution. WFRL has started procuring a larger share of vegetables and fruits directly from farms. And it’s also bringing in efficiencies in inventory management, packaging and shelf management.

More than retailers of fruits and vegetables, it’s the stores that hawk not-so-essential items that will face the brunt of an inflationary environment. Says Govind Shrikhande, Customer Care Associate & CEO of Shoppers’ Stop: “Obviously, inflation will impact the spending habits of consumers.

While the spending slowdown is not reflected in the luxury and high-end segment, inflation hits the middle class the hardest and is reflected in spends on films, eating out and clothing.” Still, being away from foods and closer to higher-value items has its advantages.

Shoppers’, for instance, has consciously been moving towards the luxury segment of late. The objective? To maintain sales growth even if footfalls reduce, via higher conversion and bigger ticket sizes. Clearly, the much-celebrated middle class, till recently lauded for its rising purchasing power and aspirations, will be tightening its belts the most. Switching over to cheaper brands or just eliminating some of the more expensive regular items of consumption will be the order of the day. As Subhiksha’s Subramanian reveals: “We are seeing some substitution effect in categories like groceries— especially oils. We are seeing early signs of cutbacks in non-essentials like higher-end biscuits.”

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