Indians flock to giant retailers for food bargains

Mumbai: Large modern Indian retailers, hobbled by strict foreign investment caps, political concerns and protests from small traders, are finding support from an unusual quarter: spiralling food prices.

With India's annual inflation rate at its highest in more than 13 years, more shoppers are switching to big food and grocery retailers, which have the muscle and the scale to keep prices lower, from small traders and vendors.

Only about 4 per cent of the country's retail industry is controlled by large retailers, compared with more than half in Malaysia, and the lion's share of food and grocery is with small shops and vendors.

Faced with higher prices of vegetables, rice, cooking oil and other items, more consumers in India are opting for the relatively stable prices at modern stores, which are squeezing razor-thin margins on food to ring up more sales.

Pantaloon Retail India Ltd, the top listed retailer, recently offered a 20 per cent discount on all food and grocery items at its Big Bazaar hypermarkets, and drew more shoppers to its 89 stores, Chief Executive Rajan Malhotra said.

In stores, Pantaloon pushed its higher-margin store labels covering a range of products from butter to lentils, and was able to offset the discount with larger volumes of sales as well as stronger margins from non-food items, he said. "Sales of our store labels have been very buoyant."

India's fragmented retail industry is estimated to be worth about $350 billion and is widely forecast to nearly double in size by 2015, with modern retail making up a fifth of sales.

Small traders and shops currently make up the bulk of India's more than 15 million retail outlets. Indian legislation bans foreign multibrand retailers from entering its market.

Rice, flour, fruits and vegetables are 20-30 per cent cheaper on average in larger retail stores, according to a recent study by the Indian Council for Research on International Economic Relations.