‘Consumption patterns are changing rapidly’

DV Ram Kumar, vice president-Food & Agri, Spencer’s Retail Ltd, spoke with Moneylife on the issues facing the food retail business and his company’s growth plans

Pallabika Ganguly (ML): Is inflation going to rise in the coming months?
DV Ram Kumar (DV):
Since the past four to five months, inflation has been settling down. But it is a fact that inflation is going to remain. This is not only due to the mismatch in the supply-demand scenario, but also due to the rapid change in the consumption pattern of consumers. The consumption pattern is changing rapidly in India—particularly in rural areas and Tier II & Tier III cities.

ML: What kind of changes do you see in food consumption patterns?
DV:
Customers are upgrading very rapidly. We are noticing changes in eating patterns in every three to six months. People are getting more exposed (to various foods) and their awareness levels are changing. Aspiration levels and consumption habits are changing. Consumers are looking for fast food (like pizzas and burgers) and also for healthy products (with less cooking oil). As an industry, if we do not prepare for such kind of changes, we will suddenly have to find a way to meet the new requirements of customers. In the next four years, we will have to face a different set of customers with different needs. We are on our toes to understand these changes, introduce new products and keep up with customers.

ML: Is poor infrastructure leading to wastage?
DV:
Productivity and wastage are the two major issues in the fast moving consumer goods (FMCG) segment. There is huge wastage in dry commodities as well as fresh products. This is mainly due to lack of infrastructure. Products like wheat and pulses are rotting despite the money invested in logistics. There is a lack of warehouses and cold chains in the country. Distribution is not happening in an equitable way. That is why some areas in India have a surplus and the others suffer a shortage. 

We need to address this factor. Annual wastage in perishable goods is almost 38%-40% and in dry commodities at least 21% gets wasted annually due to lack of storage (facilities).

ML: India is facing an acute water-shortage problem. What will be its impact on the FMCG sector?
DV:
We need sustainable agriculture. We must soon get into drip irrigation and adopt other kinds of technologies for agriculture which use minimal water. Drip irrigation has been around for a long time, but the utilisation of the technology has been minimal. Equipment (for drip irrigation) is available only in a few pockets in Maharashtra and Punjab, and equipment costs have to come down.

We as corporate houses have a big role to play in spreading awareness about such technologies. We have to take steps to educate farmers, explain to them the benefits of the technology and also spread awareness that using these technologies will boost production. {break}

ML: How did Spencer’s perform during this financial year?
DV:
The FMCG sector went through some stress during the slowdown. But going forward, we foresee good growth in this sector. At Spencer’s, we have done a lot of innovation, particularly in value engineering. We worked on inefficiencies to cut down costs. We vigorously optimised freight costs, tightened operational expenses, cut down on rents and power bills (our Mumbai stores shifted from Reliance Infrastructure Ltd to Tata Power), we closed down a few distribution centres and unnecessary warehouses. Overall , we reduced inefficiencies by 8% to 10%.

We closely looked at our efficiency parameters—this helped us to produce decent results. This is not a one-time job. We need to be on our toes to keep a tight grip on inefficiencies. Now consumption is coming back. On a month-on-month bases, we are seeing 6%-7% increase in consumption. We hope to see double-digit growth in same-store sales growth.

ML: The Union Budget has proposed 10% service tax on rented properties. How much will this proposal affect retailers?
DV:
It is a challenge. We need to represent our views and find a way to get relief on the same; in the current scenario, the industry is not ready to take this kind of enhancement (in taxes). (The service tax of) 10% is a big number, because in the first place, we are struggling to meet revenue targets versus our expenses.

ML: Can you elaborate on your expansion plans?
DV:
We are looking at expansion, but I cannot give you a number. Expansion will happen responsibly. We are situated across India—Delhi, Bengaluru, Chennai, Hyderabad and Kolkata. We are going to add more stores in these places. We are not looking at opening standalone stores in new places.

We are also planning to add more exclusive standalone non-vegetarian food item stores (under the brand) Spencer’s Fish & Meat. We are (still) at the pilot stage. We have launched three standalone stores in Kolkata. It is a complex category which needs proper back-end facilities. We will expand these stores to other cities where we are already present. We are looking at opening such stores in Bengaluru, Chennai and Hyderabad.

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