Saturday, April 25, 2009

Big bazaar ad & Rice Price Rise

This post is inspired by a Kannada post run by “Shree

See the ad below, issued by Big Bazaar. Their claim is this: “We’re buying 26000 tons of rice every year. Since we buy in such a bulk quantity we are able to buy them at amazingly low prices, which we eventually pass on to you”. Might sound logical and one may feel thankful to Big Bazaar for being so kind. But then, there’s another side to it- Since these supermarkets have started buying goods in 1000s of tons and store them in their racks and warehouses, they have created a huge demand for all necessary items and the prices have shot up. With everyone selling their stuff to supermarkets in bulk, small retailers are unable to procure them at low prices. Do you feel prices would have been lower if these supermarkets didn’t exist in the first place?
Normal rice (unsubsidized) was costing less than 20 Rs per kg one year ago. Now it costs twice that amount. I have a feeling that supermarkets never bargain enough (or in case they bargain enough, they are not passing all of it to consumers-sell at market price and pocket the gains) with their suppliers. Just think: If only all major retail companies take a stand: “We’ll not pay more than 20 Rs a kilo for rice” there will be no takers for such a huge quantity of rice and suppliers will be forced to reduce the price of rice to 20 Rs a kg. Instead, these supermarkets buy it at whatever price quoted by supplier and then sell it by adding their margins. Since suppliers got an idea that retail giants will buy from them even at high prices, there’s no hesitation to hike the price, which eventually is getting transferred to consumers like you and me. Since Big Bazaars and the likes are ready to pay higher price, small retailers can’t fight but shell out more.

For a moment let us assume there’re no supermarkets- there’ll be no bulk purchaser for that 26000 ton rice and sellers would have to divert them to small retailers and in all probability for a much lesser price. Agree?

If it was some other item, consumers would have forced a price correction-for example when tomato price shoots up to Rs 40 a kilo, people reduce preparing tomato based dishes and shift to some other cheaper vegetable. But rice is a basic item everyone is heavily dependent on (wheat based products are a substitute, but not so famous in South India). So with supermarkets and their suppliers manipulating the price, consumers are forced to pay more. At least if the high price reaches the farmer who grew paddy we can take some console, but often it’s the middlemen who pocket all the profit.

What's your take?

Also read: Cautions to be exercised at super markets * It happened in India by Kishore Biyani-Book review * Branded vs Local goods * Facts you'd like to know about Big Bazaar *

12 comments:

Mohan said...

Since these supermarkets have started buying goods in tons and store them in their racks and warehouses, they have created a huge demand for all necessary items and the prices have shot upI completely agree with that. I had never seen such a steep hike in rice price like we have seen in last one year. More over, who ever goes to big bazaar, be cautious about their billing systems. I have had a terrible experience time and again. They are the most un-reliable and deceptive people I have found among rest of the malls!

Shrinidhi Hande said...

Mohan,

Agree. Have read your post. Even I've listed some precautions one should take at supermarkets in my post

http://www.enidhi.net/2007/08/supermarket-super-savings-word-of.html

Kishore Biyani has comfortably left out the quality aspects in his book, IT Happened in India

Raveesh Kumar said...

Hi Nidhi,

Check today's Times of India, Bangalore edition, a full page ad on Page 11, where Big Bazaar has advertised about ACs saying - 33,000 AC's we buy every year. So that your pocket stays warm, not you. Though AC is not essential commodity like rice, piling up of goods in their godowns is not good news for customers.

Bhupesh said...

Share of organized players in India' retail market is less then 5%,
http://www.ibef.org/industry/retail.aspx

I can safely assume this 5% industry can not be reason for high rice price, also we have laws which does not allow companies to build up stock without permission.

Second,

Total Rice consumption in India is ~90 Million ton .. 26000 ton is 2.8% of it .. significantly higher figure in tonnage, small in % .., is it big enough for price rise .. ? I think recent price rise is aglobal phenomena.

Shrinidhi Hande said...

Bhupesh,

Thanks for providing he statistics perspective for the post. I have to admit I did publish the post without much statistical study.

Their share may be less, but since unorganized players do not have much coordination to implement counter actions, I believe companies like Future group are capable of enforcing some sort of change. Single largest customer always gets an upper hand, though it may not be as severe as he alone controlling whole market.

Second, of the 90 million tons, a huge part is heavily subsidized by the govt for the benefit of poor, who are given rice reasonably cheap through public distribution system. So 26000 ton could be significant enough if we consider only the unsubsidized rice, sold at market price to middle class families.

Shrinidhi Hande said...

Thanks Raveesh for the info. I too saw that ad... Indirectly admitting their contribution to global warming...

meenakshi said...

Hi Shri..
Its amazing to see ur analytical thoguht abt a daily activity!!!
For people like me who never bothers HOW prices go up or comedown, ur post will be an eye opener!!

Thx a alottt shri..

Work from home

Shrinidhi Hande said...

:) Its no rocket science. Everyone can understand how demand supply and price fluctuation works

HK said...

Hi Shri Nidhi,

I visit your blog atleast once in a week and like your way of assessing things.

I always had a feeling that Big Bazaar does not have fair practices. I think you may know about the "Exchange offer" given by big bazaar where only some unsold brands are given on exchange (which is promptly not mentioned in the advertisements).

Rice price rise is a pain that all middle and low class people have to face. If you know some shop where they sell good quality rice for less than 20 Rs./kg, you can let us know. That will be a service and we will be grateful.

Keep up the good work.

Regards.

Shrinidhi Hande said...

Exchange offer is a big gimmick- one has to buy for 4 times the exchange amount- its nothing but giving 25% discount on MRP of some useless overpriced item.

Wish I know some place selling rice at Rs 20 a kilo... All places I know sell rice at Rs 20 half a kilo :(

surya said...

Adding to Bhupesh's post,

You might have seen the govt making tall promises of Rs 2/Kg of rice. I feel this is a bigger contributor to the steep rise than big bazaar and other similar retail chains.
Imagine giving Rs 16/Kg rice to a substantial population for almost 1/8th the price.
Also, I do not see Big Bazaar keeping my pocket "warm". Whereas the price outside is 32, the chain sells it for 28. Not huge in the scheme of things is it?

-Surya

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