Talking Point: Stock pile-up, cuts in output worry FMCG

Stock-pile has led them to cut production. Distribution channels and consumption levels have been disturbed, leading to an overall impact on the sector. Research reveals that food and consumer products took a leap in sales post-demonetisation. The sudden spurt was seen as most of the retailers accepted old currencies. 

“When the news broke on November 8, retailers were quick to leverage SMS notifications to spread the word that they were accepting old notes, besides extending working hours all the way to midnight, leading to a jump in sales,” says Prasun Basu, President, South Asia, of Nielsen. 

“With uncertainty over availability of cash during the November-December period, or whether the local grocer would be willing/able to transact in cash, shoppers took the opportunity to stock-up. What aided sales were promotions and discounts offered by retailers,” he said. 

A report ‘Demonetisation - The Nielsen View,’ shows foods having seen the highest increase in growth during the demonetisation week at 19 pc as compared to a year ago, with packaged grocery and cooking medium displaying the highest growth. But, the study revealed a much slower growth in the impulse categories such as biscuits and chocolates. 

The food products segment, which accounts for almost 43 per cent of the overall market, received a mixed response with certain categories having seen a surge in buying activity, whereas other categories saw a demand dip from retailers. “Currently, our production is 25-30 per cent less as buyers spend less on bakery item purchases,” Gobind Ram Chaudhary, MD, Anmol Bakers says.  

Experts believe with spending cuts visible in the economy, trade channels involving higher value transactions might take longer to recover. “We reviewed our production and reduced it by 10 to 15 per cent,” opines Manish Aggarwal, Director of Bikano (part of the Bikanerwala group that makes packaged snacks). “With unsold inventory piling up with wholesalers, who mostly deal in cash to supply to traditional trade, and consumers spending less due to the liquidity crunch, FMCG makers are bracing themselves for a short-term blip in sales,” he said. 

The wholesale stores too are under stress as sales at these 'cash and carry' outlets have slowed down.