Organised retail players in India stand to lose as much as Rs 500 crore annually on account of shrinkage or wastage, experts say, mostly in the perishable products category which includes fruits, vegetables, fish, meat and poultry. Wastage is acute at the farm level, prompting top retailers to demand that the government do away with farm-gate licenses, so that retailers can buy directly from farmers, making the supply chain more efficient.
Size of the perishable products segment is pegged at $3 billion in the $28 billion organised retail industry in India, and shrinkage in this segment is 3 to 3.5% of sales, much higher than the global figure of less than 1%.
At the farm level, wastage is about 15% of the total produce, and at the transportation level, about 25%. Underlining the importance of farm-gate sourcing, Kishore Biyani, CEO, Future Group, said, ?The government should do away with farm-gate licences. Organised retailers should be allowed to buy directly from farmers; that would enable them to efficiently manage stocks at the farm level. The entire supply chain has to be rediscovered and rebuilt to make it more cost-effective.?
Direct purchasing from farmers could reduce supply chain costs by about 10 to 15%, said Raj Jain, MD & CEO, Bharti Walmart, which runs cash-and-carry stores in India. ?Over 55% of costs come from transportation. Other major costs include inventory carrying, warehousing and packaging costs,? he said, adding, ?Direct sourcing will aid not only the retailer, but also the farmer who can earn 40 to 50% more.?
According to Abheek Singhi, partner & director, Boston Consulting Group (BCG), shrinkage in the food category is a major contributing factor to high supply chain costs incurred by retailers, which is about 3.5 to 4% of total sales, higher than the worldwide figure of 1 to 2%. ?However, shrinkage is much lower in the non-food category,? he said.
Retailers are leaving no stone unturned to optimise operations to achieve supply chain efficiencies. Thomas Varghese, CEO, Aditya Birla Retail, said, ?We?re at an efficient level of operation and our store-level shrinkage is about 1%. In accordance with certain provisions of the Agricultural Produce Market Committees (APMC) Act, we purchase 35-40% of produce directly from farmers. To reduce supply chain inefficiencies, frequent replenishment from vendors and optimisation of transport costs are important.?
Supply chain inefficiencies lead to more wastage and pose hurdles in the path of profitability, believe most modern retailers. Singhi added, ?The major constraint in retail growth is not from the demand side, but from supply. Lack of proper back-end infrastructure leads to a high percentage of shrinkage, making it challenging for retailers to manage costs.?
Ashutosh Chakradeo, head ? buying, merchandising & supply chain, Hypercity said, ?Our supply chain costs amount to 1.2% of our total sales, which is at a mid-level efficiency. We’re trying to bring it down to 0.6 to 0.8%, with an increase in the scale of operations in the next 3 years. Our wastage in perishable items, is estimated to be about 0.5%, which amounts to a loss of Rs 3 crore annually. It is quite healthy, considering the industry wastage rate.?
The need for investments in back-end infrastructure is imperative for retailers. Rajan Divekar, senior director, Deloitte said, ?FDI in multi-brand retail should be utilized to develop back-end operations considerably. Improved transportation fleets, refrigerated vans and pre-cooling chambers can bring down wastage by about 40%. Retailers should invest in technology for gathering real-time information on inventories. Better grading and packaging systems should also be in place.?
