Inflation-hit consumers are steering clear of discretionary spends to gravitate towards value formats and discount stores to stretch their buying power.
The slowdown of growth rates has clipped sales in several high-priced categories like mobiles and apparel by over 20-25 per cent (industry estimates) in the past few months while spends on basic food and home items have grown by over 25 per cent, as per AC Nielsen estimates.
Bargain hunters are flocking to modern ‘value retail’ formats like Big Bazaar, Food Bazaar, Subhiksha and More, which have intensified their bargains and discount offers to encourage consumption. Modern retailers are now pushing private labels (lesser priced in-house brands) even with consumers opting for cheaper brands.
“Consumers are demanding higher benefits for their spends in inflationary times. We are now pushing the expansion of our value formats to gear up for the challenging times ahead,” said Kishore Biyani of Future Group. The retail group opened over four Big Bazaars in a single day last week to gear up for its massive bargain offerings on 15 August called ‘Maha Bachat Ke Paanch Din’.
Spends on top household categories rose 25 per cent during January-May 2008 with categories like refined edible oils, toothpaste, washing powder, biscuits, toilet soaps, beverages, packaged atta, breakfast cereals, shampoo and others recording an average growth of 25 per cent plus during the period.
KSA Technopak CEO Arvind Singhal said: “I do not think that the impact on purchases is on account of a slowdown. Some of the discretionary products were ridiculously over-priced by retailers and companies are now being forced to correct that. India’s growth rate continues to be one of the highest in absolute numbers, only lower than the previous years. Corporates are under pressure from value-seeking consumers and real-time competition. Consumer trends are merely a reflection of the fact that companies are focused more on capacity creation rather than demand creation.”
Industry observers said that consumer sentiments have been hit owing to inflation, rising borrowing costs, challenging business environment and the fact that salaries will not keep pace with rising costs. Discount formats benefit more during recession and a weak economy with their higher-priced counterparts noting a significant dip in sales. “Discretionary spends are clearly getting to be a challenge for most low and middle income shoppers and even affluent consumers are seeking higher worth for their rupee,” said Subhiksha managing director R Subramanyan.
Retailers are cross-subsidising discounts offered on basic purchases by hiking margins on the discretionary spends. “We have also been scaling down costs in our system to be able to offer value. Given our scale, we are in a position to negotiate better with consumer companies to get the best rate for consumers,” said Food Bazaar CEO Sadashiv Nayak.
Consumers are postponing purchases of big ticket and lifestyle items like durables, apparel, mobiles and accessories in recent times forcing companies to announce pre-season discounts and price cuts. Retailers, however, criticise FMCG companies resorting to what they describe as tactical moves to tackle rising costs and consumer purchases. “Several companies continue to hike prices or lower the grammage or quantity to manage costs. We see this move hurting long-term demand since consumers tend to switch to more competitive regional and lower-priced brands,” sources said
Retail analysts say consumer trends in India mirror global trends where more purchases are taking place at value formats like Walmart in the US which is also reeling under recession and inflation. Value retailers are expected to benefit from an economic slump as shoppers head to discount stores for a better deal.
7 months ago