Retailers boost supply chains, forecasting

Food retailers say they are trying various techniques to cope with the Union government’s extension for a year of the rule on stock limits for rice, sugar, pulses and cooking oil.

Among these are improving sales forecasting, trying hard to find new arbitrage opportunities in commodities and boosting supply chains to escape from stock-outs and help keep prices under check.

The Union cabinet on Thursday extended the Essential Commodities Act until September 2010 to empower state governments to impose stock limits on certain items with the aim of preventing hoarding. Concerned at the possibility of food shortages and a rise in commodity prices due to the monsoon shortfall, states such as West Bengal, Madhya Pradesh and Maharashtra have already imposed stock restrictions on traders.

“We are working hard to improve our supply chains further, go in for more replenishment to provide best possible prices to our customers. A small increase in cost will not come in the way of providing right services,’’ said Rakesh Biyani, director, Pantaloon, which runs formats such as Big Bazaar and Food Bazaar, among others.

Food Bazaar has already conducted forecasts up to November and is aggressively pushing combination pricing to attract customers, where two products such as rice and oil are bundled so that customers can take the advantage of lower prices of one item even if the other one is expensive.

There are others such as Spencer’s Retail who, in recent months, have taken a hit on their margins to keep prices of items such as pulses and edible oil under check.

“We are focusing on speedier turnout of inventory and just-in-time inventory management as much as possible within our working capital limits. We are doing crop and sales forecast for three-four months to remove uncertainities,’’ said D V Ramkumar, vice president of food and agri, Spencers Retail.

But analysts say stock restrictions could lead to empty shelves in stores and lower fill rates by fast moving consumer goods (FMCG) companies, all leading to potential business loss.

“The biggest issue is empty shelves, as they cannot buy as much as they want. The stock limits will also impact the buying plans of FMCG companies who produce goods such as chocolates and other processed foods. This will lead to lower fill rates,’’ said Anand Raghuraman, director at Boston Consulting Group (BCG).

Raghurman says just-in-time inventory management does not work in India due to problems in transport and infrastructure, among others. It is also expected to increase the transportation costs of retailers, as they have to buy frequently.

“In staples and cereals they can increase prices; in packaged goods, they cannot. But if they increase prices, they will come close to that of kiranas and be less competitive,’’ he adds.