“Rich people love low prices, the poor need them”

HypercityHypermarkets have caught on the imagination of poor and rich alike. Shoppers are thronging to 25 or so of the country’s Hypermarkets. And, there is a scope for 1,000 such markets in 67 retail destinations by 2010, says an interesting report in Rediff.

“We expected 3,500 footfalls a day, but, by the second week of its launch in May, the figure stood at 12,500,” said Andrew Levermore, CEO, K. Raheja promoted HyperCity Retail.

What makes Hyper markets click? The convenience of one stop shopping, lower prices, or wider choice of products? May be all, but price appears to be the major driver of increasing footfalls.

People may love to shop, but their eyes never stray too far from the price tag. “Rich people love low prices, the poor need them,” says Livermore. “Unless your prices are the best, especially in the food and groceries (F&G) segment, there’s little point,” adds Levermore, explaining that it’s actually the perceived value that customers believe they’re getting that is going to matter.

So, how are hypermarket retailers coping with the pressure to offer lower prices and still make money? Here, are a few of the strategies followed by some of them:

Right Product Mix: To overcome lower gross margins of 10 to 12% on Food & Grocery (F&G), retailers are trying to optimise the product mix of F&G and General merchandise. A product mix comprising 40% food and 60% of non-food could enhance gross margins to a respectable 18-19%. While Hypercity, is able to achieve a mix of 60  non-food to 40 food, Big Bazar is able to do even better with 63% of non-food.

More Non-food Display: Higher non-food sales are achieved by allocating higher shelf and display space. Food display space is restricted to around 20%. This works, because shoppers, in any case, are there to shop for food items.

Store Labels: Hypermarkets are also working hard to discourage sales of branded products. They are promoting their own labels, though, it is not easy to promote them beyond a point due to strong customer brand loyalties for a class of goods, such as, FMCG. While Hypercity has achieved store labels sale of around 30%, Trent promoted Star Bazar has been able to touch only 10%.

Increased Volumes: “Suppliers themselves are willing to give away more if the volumes are high enough,” says Neeti Chopra, Marketing Head Trent.
Bypassing Middlemen: Retailers are also striving hard to keep costs in check by improving sourcing efficiencies. By pruning on the middleman and reaching farm gates, retailers are able to improve margins. “There are too many middlemen” says Levermore.

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