Why does discounting work in the groceries business?
Worldwide, grocery retail is considered the most price-sensitive sector. Consumers, especially in developing markets, spend more on groceries than anything else. In grocery buying, the customer is principally buying staples: unlike a mobile phone, it’s not new or incremental consumption. Grocery retailers don’t create demand but absorb demand from other retailers. Differentiation is tough in grocery retail: stuff made by HLL or Nestle will be the same whether sold in a swank store or a 100 sq. ft. hole in the wall by a local kiranawallah. So, price is the differentiator we plonked on. A discount format works in the price-conscious south, but what about places like Delhi, where you plan to expand? Delhi is not only GK and South Ex but also Sarojini Nagar and RK Puram. If Delhi and the north were not price-conscious they would not buy Nirma or Akai or Reliance phones: these are products that win on price platforms. In Subhiksha’s case, instead of Akai vs LG, it is Maggi at Rs 40 vs the s
