FMCG firms brace for retailer backlash

E-commerce majors & airline operators rejoice

Sale of consumer goods took a hit on Wednesday as Rs 500 and Rs 1,000 denomination notes ceased to be legal tender. Reason: The retail trade in India usually prefers cash transactions.

Of the 12-15 million retail outlets in the country, according to Nielsen, nearly 9.4 million outlets are mom-and-pop stores that mainly deal in fast-moving consumer goods (FMCG).

Sumit Malhotra, MD of Bajaj Corp, the maker of the Bajaj Almond Drops hair oil, said: “India, in fact, has the highest concentration of these mom-and-pop stores or Kirana stores in the world. And most of these guys prefer dealing in cash as it is not only convenient but also in many instances allows them to under-invoice.”

While the government’s demonetisation move is aimed at curbing under-invoicing, the worry was that retailers would de-stock in the short term, impacting sales. “Even a 15-day de-stocking period has the potential to hit the annual turnover (of a company) by 4 per cent,” Malhotra said. “For me, this is not good news.”

Adi Godrej, chairman of Godrej Consumer Products, was cautious, saying he saw a short-term impact on sales. “Yes, de-stocking is a concern. But this will get sorted over the next few months.”

An ITC spokesperson said there would be “some inconvenience” in the near term for customers and retailers, but added that the company saw no major disruption in transactions.

But not every company shared this optimism. A chief executive officer of a mid-tier FMCG company admitted that he saw November sales being impacted on account of demonetisation. “We are expecting sales this month to be hit by 25 to 30 per cent depending on how our trade and channel partners respond,” he said.

Comments from executives at companies across the board — from consumer staples to durables and electronics — showed that most were nervous. Many admitted that they had been calling up their trade partners frantically through the day to take stock of the situation.

Even pharma companies joined the chorus, saying that they saw a temporary blip in sales due to supply-side issues. Cipla CEO and Managing Director Umang Vohra said, "There will be a liquidity squeeze for some time on the business, but it is not as if demand will go away. It will come back.”

Amid the chaos, there were some bright spots. Airline operators and the Indian Railways saw a considerable surge in bookings, as the government had said transactions in Rs 500 and Rs 1,000 notes would be permitted here for two days.

“Cash bookings at airports have gone up significantly today, though not necessarily for travel. We are seeing more than double the normal booking,” said a senior executive of a private airline.

Low-cost carrier SpiceJet reported almost 20 per cent surge in cash bookings at airport counters on Wednesday. “It is a panic reaction, passengers are all paying in cash,” said Ajay Jasra, head of communication at SpiceJet.

Till 2 pm, there was a 40 per cent increase in bookings via the passenger reservation system (PRS) of the Indian Railways.

E-commerce majors were also a happy lot with the government’s demonetisation move. “This will enable India to move faster towards digital payments and will be a game changer for the e-commerce industry,” a Flipkart spokesperson said. The spokesperson added that cash-on-delivery orders, a key mode of payment for most e-commerce purchases, were being capped at Rs 1,000.

Ananth Narayanan, chief executive of Myntra, said, “The demonetisation move will  fundamentally change the way Indian consumer transacts and will enable e-commerce companies to grow their non-cash payment channels faster, which will give an impetus to the growth of digital commerce. While there are likely to be initial teething issues, it will be a win-win for both the consumer and the industry in the long run.”

An Amazon India spokesperson said the firm was working on alternatives to make doorstep payments easy. “We will shortly reintroduce cash payment on delivery and also provide an improved selection of payment methods — both online and at the customers’ doorsteps.”