Rachit Vats, Financial Express
New Delhi, September 8, 2013

Early this year, Gurgaon residents Abhishek Salwan, 33, and his wife decided to cut down on their weekly visits to the local hypermarket and started preparing a monthly grocery list instead for their local grocer.

Salwan is not alone. An increasing number of people are turning to traditional kirana stores to tame rising budgets, in the process impacting the usually resilient fast moving consumer goods (FMCG) sector.
A sector that remained defensive even during the dark days of 2008 is seeing a slowdown this year, especially in modern retail.

As per market researcher Nielsen, the overall FMCG growth numbers for H1 2013 came down to 11%, from last year’s 17%. The impact on modern trade, which contributes about 7% of the total FMCG market, saw growth rate come down to 11% during H1 2013, from 34% in the same period last year. Just two months into the third quarter, the numbers have seen only a marginal improvement owing to the festival season. Modern trade has been growing over 20% over the last few years.

“There is a restructuring in the industry. Sales are lower than last year on a same-store basis. While there is a slowdown, the growth numbers are still in double digits at 12%,” Spencer’s Retail president & CEO Mohit Kampani said, adding, “The major trend is that consumers are not upgrading as they were doing earlier. Further, retailers are not opening newer stores and even pulling out of existing properties.”

“There is a tendency to cut down on discretionary spending,” Devangshu Dutta, chief executive of retail consultancy firm Third Eyesight said, adding, “In the Indian context, modern trade can end up suffering because it can be perceived to be either more expensive than traditional retailers or consumers feel they are overspending due to wider choices and promotions.”

While the likes of Hindustan Unilever and Future Group were not forthcoming with numbers, sources said till 2012, HUL’s modern trade was growing at 32%, faster than traditional trade at 17%. In H1 2013, the company’s traditional trade is growing faster at 7% while modern trade growth is at 6%.

Take Future Value Retail, the listed arm of Future Group that runs grocery chains such as Big Bazaar and KBFairPrice, for instance. The company’s net sales for the six months ended June was at R3,801 crore, a surge of 4.5% compared to the same period last year even as its gross margin during the period remained flat at 24.7% while the EBITDA margin grew to 8.1% from 7.5%. The retailer’s store strength during the period came down as Big Bazaar store numbers came down to 159 from last year’s 162. Food Bazaar store numbers fell to 29 from the earlier 46. While the company did not give a break-up of FMCG and apparel sales, joint MD Rakesh Biyani admitted it has been focusing on increasing share of sales in the high-margin fashion category.

“FMCG drop is a function of the market and inflation — overall, sentiment is down. Modern trade is a very mixed story and has to be seen in that light — players are reworking their business models and as a result comparison over years is not necessarily on a like-for-like basis. Surely, for the more organised and better players, store-wise performance is improving,” KPMG Transaction Services partner Mohit Bahl said.

(This article appeared in Financial Express on September 8, 2013)

Priyanka Pani & Bindu Menon, The Hindu Businessline
Mumbai/New Delhi, September 3, 2013

Given how consumption declines during this time, retailers try to excite consumers into opening their purse strings with attractive offers. “In the last few years, due to (promotional) campaigns, people have been buying during the ‘inauspicious period’ as it is followed by the wedding season in Kerala,” says Alukkas Varghese Joy, MD of Joyalukkas. “This year, we have seen marginally higher growth over last year.”

Nalli’s, India’s largest saree retailer, has an aadi sale every July.

SCHEMES GALORE

Ajit Joshi, Managing Director of Croma, a leading consumer durables retailer, says that during this period, a lot of finance partners and product manufacturers come up with various schemes, including low down-payment, low processing fees and attractive interest rates. “Such initiatives help us sail through this pre-festival period,” adds Joshi. This is resulting in highersales — about 20-40 per cent more than on a normal day.

Earlier, retailers used to witness bumper sales only during big festivals such as Onam, Diwali or Dasara . Now, with the industry more organised and with the entry of foreign brands, there is a huge competition to attract more customers.

The off-season sale trend, which kicked off in South India in the early 2000s, has now spread across the country.

Devangshu Dutta, from marketing research firm Third Eyesight, says that earlier, festival peaks could account for as much as 70-80 per cent of a brand’s annual sale. But in the last 10-15 years, consumers with higher discretionary incomes have tended to spread their spending round the year. Besides, the availability of multiple brands and increase in the number of stores has also improved product visibility year-round. The number of discount periods has also increased, encouraging customers to de-link their purchases from the festival period.

“It is better for retailers to have a more consistent and predictable flow of customers than managing huge peaks, which are impossible to forecast and difficult to fulfil,” says Dutta.

Some retailers do not seem to think there is a ‘season’ for sales. Future Group, which has pioneered celebrating local community festivals, believes each day is an opportunity and runs offers even on weekdays.

(This article appeared in The Hindu Businessline on September 3, 2013)