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Imported food items may cost up to 20% more on rupee slide

Suneera Tandon & Vidhi Choudhary, MINT

Mumbai, June 22, 2013

The slump in the value of the rupee against the dollar may force dealers of imported foods such as cooking oil, snacks, cereals and cold cuts to raise prices by as much as 20%, although they are reluctant to do so because of sluggish demand, experts said.

Some items could possibly go off the shelves as importers stop imports for a few months in the hope that the Indian currency will become less volatile. The rupee has plunged to a record low as investors have been exiting markets after US Federal Reserve chairman Ben Bernanke signalled a possible end to stimulus spending.

“We have streamlined imports for the next three months. We will wait and watch,” said Amit Lohani, managing director at New Delhi-based Max Foods Pvt. Ltd, which distributes Doritos chips and Danish cookies and products from companies such as Kraft foods (UK) and Nestlé coffee through retailers across India. If the rupee weakens further, Lohani said prices could rise by a fifth.

Uday Chugh, who runs New Delhi-based Vriddhi Specialty Foods Pvt. Ltd, has suspended imports. “The costs are just not working out for us,” he said. “I have halted all my shipments coming in from America as of Thursday.” The company imports cooking oil, snacks and sauces from the US and Europe.

As most importers work on a shipment cycle of 35-40 days, the impact of the depreciating rupee will be strongly felt in the next few weeks and months, if not longer. Shop prices are determined by factoring in the rupee value along with its impact on freight and transport cost.

Chugh is wary of price increases that could hurt demand. “We are very hesitant to take further price hikes,” he said, adding that he will absorb as much as he can before passing higher costs on to consumers.

Rakesh Banga, who runs Banyan Finefoods India Pvt. Ltd, a New Delhi-based importer of cold cuts and packaged products such as tuna and breakfast cereals, fears that customers could dry up.

“Demand for certain categories will completely erode if things don’t improve,” he said, adding that he anticipates price increases to the tune of 15-20%.

He’s still placing orders though. “I cannot afford to stop shipments as business will get impacted,” he said.

Demand is already under stress because of the inflationary environment, Lohani said.

“Imported foods are a luxury for consumers, but when price hikes like these take place alongside high costs of living, consumers will see the pressure,” adds Lohani.

Arvind Singhal, chairman of retail consultancy Technopak Advisors Pvt. Ltd, agreed. “The biggest cause for this is not just a depreciating rupee but the general slowdown in the economy, which has led to a decline in discretionary spends, especially for products which have local substitutes available at cheaper prices, with the exception of the very affluent consumers,” he said.

Venkat Narayanan, chief merchandising officer at supermarket chain Spencer’s Retail Ltd, which has 134 stores across India, said the company hasn’t seen any erosion in demand as prices have been constant.

“While we continue to monitor the value of the rupee, we have not made any changes to the pricing of our imported product range. As a result, there has been no appreciable change in consumer demand either,” he said.

About 8% of the chain’s portfolio comprises imports—processed food, staples and dairy products besides chilled and frozen items among others.

“Of course, if the rupee continues to stay depressed in the long term, it will definitely have an effect on pricing but we do not foresee an immediate impact on demand unless the (rupee) fall is dramatic,” Narayanan said.

Mohit Khattar, managing director at gourmet food chain Godrej Nature’s Basket, is confident of being able to ride out the rupee storm.

“Even if there is a decline in this market, it will not have such a great impact on our existing consumer base since they are well insulated from such price hikes,” he said.

If the rupee doesn’t get back on even keel, however, store footfalls may remain stagnant, he said.

Pramod Gupta, owner of New Delhi’s Defence Store that sells imported confectionery and grocery items, said: “Since this (rupee decline) might impact importers, it’s possible that they stop purchases of stock for sometime, although, I feel this is only a temporary glitch and it’s too early to say anything.”

The store, located in delhi’s defence colony and operating since 1952, gets 30% of its sales from imported food categories.

Specialty gourmet stores have over the past few months found it difficult to sustain business because of sluggish demand, rising real estate costs and import duties. “Real estate cost as well as people cost are crucial deciding factors here,” said Devangshu Dutta, chief executive at retail consultancy Third Eyesight. “With a price increase of 10-15%, the mass market demand for these products from consumers who were essentially occasional buyers will get hit,” he said.

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