Keeping a cap on it

Abu Dhabi: With a world population that is larger than ever before, a rash of natural calamities in recent times, high fuel prices and fears of global shortages, food prices are soaring close to record highs worldwide.

Average consumer prices are up by 2.5 per cent during the first half of this year compared to the same period in 2010, according to data recently published by the Statistics Centre Abu Dhabi (SCAD).

The largest increase within the food and non-alcoholic beverages group has been attributed to the price of meat which has risen by 13.5 per cent, followed by coffee, tea and cocoa which are up 12.8 per cent, fruits which are up 11.1 per cent, mineral waters, soft drinks juices which are up 9.2 per cent and vegetables which are up 8.1 per cent.

In Abu Dhabi, the government has been enforcing price caps on various products — an initiative that retailers in the food business have mixed feelings about.

Government initiative

Earlier this year, in May, the Ministry of Economy announced that around 400 essential commodities would have their prices frozen until the end of the year as part of an initiative to curb inflation.

Today, there are close to 1,000 products with fixed prices across 300 outlets nationwide to ensure stability of the market.

"We have agreed to freeze the prices of 40 products," said V. Nandakumar, head of corporate communications at Lulu Hypermarket Group.

It's a policy that has left retailers working at even lower margins and the market with a greater competitive edge.

"Whether it's Lulu or any other retailer in the market, no one wants to be seen as an expensive store," Nandakumar said. "Any price increase that is made comes as a result of an increase in price at some level of the chain involved in this whole process," he said, referring to the manufacturers, suppliers and distributors.

"We're the last link in the chain, so we can only sell at what we get," he said. The best you can do is attract more shoppers by offering better deals, he added.

Bejoy Pulicken, marketing and new initiative manager at Abu Dhabi Cooperative Society, said that when one market player caps the price of a product, in effect it gets the competitors or other retailers in the market to match the same selling price.

"At the end of the day, it's the pricing factor that differentiates one place from another," Pulicken said.

Abu Dhabi Cooperative Society currently has over 240 products at cap price.

However, in a business that is constantly affected by the strength of currencies, natural disasters and the basic rules of supply and demand, there really can't be much control over the initial purchasing price tag.

"We will continue to do it for as long as possible, but is this a long-term solution?" Pulicken said. "Businesses can't take losses for long."

Jannie Holtzhausen, CEO of Spinneys Dubai, told Gulf News that the retailers in the food business "can focus on efficiencies to delay the effect of cost increases, but manipulating or freezing prices will ultimately distort market forces."

Passing on the incresae

"At Spinneys, we do not consider lowering quality to offset price and if we cannot source a similar quality product at a lower price, we will pass the increase on to the customers," he said. "Any retailer that tells you otherwise, is simply not truthful." Holtzhausen said that retailers work, on average, at a three to five per cent net margin. "When inflation is above that [percentage] and you absorb the increases, you are in a loss-making business within a year," he said.

But the retailers have been finding ways around the policies and global price increase. Spinneys has made investments in buying offices in the main supply countries to help ease prices on its customers, Holtzhausen said.

Similarly, Lulu Hypermarket has been "avoiding the middle man" recently and negotiating with suppliers and manufacturers to reduce the cost and help its business. "We have specific teams who go to different countries, source the products and import them directly to our stores," Nandakumar explained.

"We're negotiating better rates so we can sell at lower prices."

However, many of the products that have shown increase in sales most recently fall under what is called a private label, which is the retailer's own brand. It's a category that many retailers have started to focus more on.

Being flexible

While consumers like to afford the brands that they are used to buying, when the budget is tight they can be flexible about certain more affordable products, Pulicken explained.

Private labels are more affordable and are gaining more popularity in recent years, according to the retailers. The composition of private label is less than 10 per cent of display or in other words sales in this part of the world, he explained. While this is a small percentage compared to Europe and America, it's one that is certainly growing, he said. "For instance, in the milk category you have the CO-OP brand of powdered milk and it is as good as the A brand in terms of quality and is way more affordable," Pulicken said.

Lulu Hypermarket launched its private label about five years ago. Today, their brand is present in over 20 product categories.

"The response has been huge; primarily for two reasons — good quality and better price," he said. "In some categories we are outselling the brand leader." 

Consumers changing shopping habits 

Abu Dhabi: In the light of the economic recession and the impact of inflation on food prices, there's no doubt that consumers have become a lot more cautious about spending their money at grocery stores. Many have changed their shopping habits to save the extra bucks.

Milena Crepaldi and her husband have recently started making trips to the Fruit and Vegetable Market in Abu Dhabi once a week to shop for food, instead of heading to the local supermarket.

It's cheaper to buy at the market, Crepaldi told Gulf News. "For example, you can buy a box of tomatoes for Dh10. You can't buy this many tomatoes of such good quality at Dh10 at the supermarket," she said.

Malek H., another regular shopper at the Fruit and Vegetable Market said prices had not varied "that much" over the past year. "Well of course, if I go to Spinneys or any other supermarket, it's going to be more expensive. I won't get the rates I get over here. Here is the place to buy."

Several variables

At Abu Dhabi's Fish Market, it's a different ball game with several variables at play.

Fayez Ebrahim, an Abu Dhabi resident, said prices have gone up compared to a year before — almost 20 per cent. He says he has been buying smaller portions.

When Gulf News asked the traders, they all denied any drastic increase in their fish prices.

Mustafa P., a salesman who's been in the business for 18 years now, said the difference wouldn't exceed Dh2 to Dh5 depending on how well a consumer bargained. "Too much catching, the price is down. Little catching, the price is high,"

Mohammad Radwan said that the fish market is "like the stock market." The Abu Dhabi resident makes a trip to the market twice a week.

According to Shamsiya, also a fish salesman, business hasn't been great because of the heat, but prices are "same same".

Staying on safe side of your budget

 Source: Various online websites