In today’s Finshots, we tell you why IKEA sells food as well.

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IKEA wants to double its food sales in India soon.

Now, if you’re an IKEA fan, you probably know how famous it is for its affordable food, especially those meatballs. And if you didn’t know, yes, we’re talking about IKEA, the global furniture giant.

But Finshots, what’s a furniture company doing selling food, you ask?

Well, to understand that, you’ll need to know a bit about why IKEA sells what it sells.

See, IKEA’s founder, Ingvar Kamprad, understood early on that you could still make a profit by selling things at low prices. He figured this out as a seven-year-old when he bought matchsticks in Stockholm and resold them to his neighbours in rural Sweden for a little extra cash. This entrepreneurial spirit stuck with him. Fast forward a decade, and Kamprad launched a retail business selling everything from pens to stockings. But it wasn’t long before he spotted a bigger problem ― furniture was ridiculously expensive, and it was out of reach for the average working-class family. So Kamprad thought “What if I sold good-quality furniture at prices regular folks could actually afford?”

And that’s how IKEA was born.

While others prioritised higher profit margins, Kamprad decided to keep his low. And as you can imagine, established furniture retailers weren’t too happy about this.

They boycotted Kamprad’s business and pressured local suppliers to cut ties with IKEA. This meant that Kamprad had to turn to Poland in search of alternative suppliers. And that’s where he discovered that furniture could be made in Poland for a fraction of the cost compared to Sweden. This unexpected twist gave IKEA a major boost.

And if you look close enough, you’ll see that IKEA has faced challenges right from the start. But these bumps forced Kamprad to think outside the box, adapt and keep moving forward, even when things got tough. And this adaptability is what became the backbone of IKEA’s global success.

And it’s the same mindset IKEA is using to adapt in India today.

You see, IKEA opened its first store in Hyderabad in August 2018. Back then, there was a lot of excitement, with crowds lined up eagerly on the big day. But despite the initial buzz, IKEA’s success in India hasn’t quite lived up to the hype.

You could blame IKEA’s world-famous flatpack furniture for this, to begin with. If you’re not familiar, this is furniture that comes in compact, flat boxes and needs to be assembled at home. It’s a clever design that makes transportation and storage cheaper. But it hasn’t quite clicked with Indian consumers as expected. Maybe it’s the cultural connection that makes Indians lean towards furniture that reflects our traditions. Or perhaps it’s our love for handcrafted pieces made by local carpenters using high-quality wood that lasts for generations. The DIY (Do It Yourself) furniture assembly approach just doesn’t seem to work for us, which is one reason why IKEA hasn’t caught on as expected.

On top of that, competitors like Wooden Street, Pepperfry and Urban Ladder have tuned into local preferences and tastes. They’ve adapted to what Indian consumers want, making it harder for IKEA’s global furniture model to gain traction.

Plus, you can’t deny that even though IKEA offers affordable furniture, the expectations for “cheap” in India are quite different. To compete, IKEA might need to cut its profit margins even further, which will impact its financials.

To put things in perspective, over the past five years, despite rising sales, IKEA has been losing at least ₹3 crores in India every day due to its hefty investment to expand its footprint. That could also be holding back IKEA’s original expansion plans. For context, it aimed to open 25 outlets by 2025. But so far, it has only managed to keep 4 stores open across the country.

So, what does IKEA do to turn things around in a situation like this?

It adapts, of course!

One clever way to do that is to dive into the food business. And no, this isn’t a new trick for IKEA.

The company started serving food way back in the 1960s, thanks to Kamprad’s brilliant idea of keeping cranky a.k.a. “hangry” shoppers satisfied, so they’d stay in the store for longer. And it worked! A couple of decades later, IKEA was on the hunt for a signature dish that would be both easy to serve and iconic. And thus, the famous IKEA meatballs were born!

If you’ve ever walked into an IKEA store, you know it’s not just about the furniture. A lot of folks head there for the chance to munch on those world-famous meatballs.

And it’s not us assuming that. Because around a third of IKEA’s global visitors come primarily for the food. In India, that figure could be even higher since close to 20% more visitors come in to grab a bite rather than just browse for home decor.

So yeah, food sales have become a major player in IKEA’s revenue. And the plan is to keep this trend going strong.

And why not?

Globally, food brings in about 6% of IKEA’s total revenue, translating to roughly $2.5 billion in sales annually. And the company has seen an impressive growth rate of 8% per year in its food business since 2016.

And if this trend is even better in India, it makes total sense for IKEA to capitalise on it, no? After all, if IKEA can entice more visitors with its food, they’ll likely spend more time in-store and that could boost its overall revenue.

IKEA has tried this approach elsewhere too, like in Portland. It offered customers discount coupons equivalent to the amount they spent on food. For instance, if you spent $50 on lunch at IKEA, you’d get $50 off on your furniture bill when you checked out right after. Not a bad deal, right?

Now, imagine something similar happening at IKEA stores in India. It could certainly turn some heads, don’t you think?

And while adapting to Indian tastes in furniture might be tricky, IKEA has been juggling a mix of global and cultural hurdles for nearly eight decades. So, this roadblock might just be another bump on the road to success.

What do you think?

Until then…

Fun Fact: IKEA is an abbreviation for Ingvar Kamprad from Elmtaryd, Agunnaryd, Kamprad’s childhood home.

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