Discretionary products bear the brunt of demonetisation, witness steep fall in sales

Ramji Ganji & Co, a kirana store at Churchgate in South Mumbai, has witnessed the steepest fall in sale of products like aerated drinks and face creams. Sales have slid by more than 30 per cent in both these categories since demonetisation was announced last month.

“Consumers are cancelling their parties as they do not want to buy Coke and Pepsi while women are no longer asking for face creams,’’ says the owner of the general provision store.

Industry sources indicate that aerated drinks category has dipped in consumption by more than 25 per cent and this is more pronounced in the mini-metro markets. Coca-Cola and Pepsico refused to officially comment on the impact of demonetisation on sales but it has been a double whammy for the MNCs already facing de-growth in the aerated drinks segment. Winter is a season when production is generally curtailed in this segment.

However, necessities like packaged water have not suffered a similar fate as aerated drinks. Bisleri’s Chairman, Ramesh Chauhan, said, “Everyone will find a way out. Distributors can always be paid on credit and this period can get extended in times like these. Water as a category has not been impacted but it may not be necessarily the same case in the aerated drinks category.’’

Parle, the makers of the country’s largest glucose brand of Parle G, is willing to admit that it had reduced 30 per cent of its biscuits production in the month of November. It now fears that all high-ticket items, that are discretionary in its portfolio, including its new imported brand of chocolates, may take a further hit.

“Any FMCG product which is not a necessity and is discretionary in nature will get impacted this season. Biscuits is almost like the staple category and its impact will be less than some of the big ticket categories like skincare and hair care which have products like creams and shampoos belonging to companies like HUL, Godrej, Emami, Dabur and Marico Distribution cycles have slowed down as less orders are being placed with some of these FMCG categories. But staple brands like ITC’s Aashirvaad atta will have takers,’’ observes B Krishna Rao, Deputy Marketing Manager, Parle Products.

It is mostly the general trade and kirana outlets which stock majority of FMCG products that are still reeling under the impact of demonetisation unlike their modern trade counterparts. Having dealt in cash with wholesalers and distributors, FMCG companies are willing to double the credit time given to distributors when they buy the goods from them and the distributors in turn are also willing to do the same when they sell the goods to the retailers, to normalise operations.

Observes K Ramakrishnan, Country Head, IMRB Kantar Worldpanel, “In FMCG, it is the wholesale trade which has been affected and this has disrupted the entire distribution for smaller retailers and the general trade for FMCG players. While the staples category has seen the least impact, discretionary products like skin creams are likely to suffer the most. The north of the country, which is the hub of wholesale trade, has been the most impacted while the southern markets have felt the least impact and the rest of the markets have been somewhere between.’’

Tata Global Beverages, the market leader in tea, has faced marginal reduction in demand. Sushant Dash, Regional President, India, Tata Global Beverages, said, “It is de-stocking in the system by distributors and wholesalers who dealt in cash, is what has impacted the general trade retailers. The impulse and luxury segments, which are mainly discretionary in nature, have been impacted in the FMCG segment. We have seen a marginal reduction between 5 and 10 per cent since tea is a necessity and will wait to see how consumer demand pans out before taking any decision on production.’’

Tea and biscuits may have got some respite from the slowdown but indulgent categories like juices and chocolates may not have a similar fate. BP Agarwal, President of the Biscuit Manufacturers Association, said, “Biscuit sales have dropped by 30 per cent but there is not much which can be done as even promotions cost money and input costs have also been going up over the years. However, we are better off than some of the other FMCG categories like chocolates and juices which has seen a 70-80 per cent drop in demand.’’

Meanwhile, downtrading of brands and products in the FMCG category is expected to get more rampant. Dairy major Parag Milk Foods expects to feel the impact of demonetisation on high value food products like ghee and cheese.

“We fear there will be down trading to smaller packs in the case of high value products like ghee which sells at ₹500 for a litre unlike in the case of staples which consumers cannot avoid buying. To counter the pressure, we have to adopt new ways of selling, with sachets leading the way as there is bound to be down trading. We have already extended the credit line to our distributors and are willing to take post-dated cheques from them,’’ said Devendra Shah, Chairman and Managing Director, Parag Milk Foods.

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