Demonetisation impact: FMCG growth tanks in Nov-Dec

Consumer goods sales growth by value declined to 5.3% in the Dec qtr after an easy ride

The ban on high-value notes announced by the government on November 8, 2016, took a heavy toll on fast-moving consumer goods (FMCG) companies in the December quarter.

Data shared by Kantar Worldpanel, part of the WPP Group, show that FMCG sales growth by value declined to 5.3% in the December quarter after cruising comfortably in the first three quarters of calendar year 2016.

Sales growth by value for the quarters ending March, June and September 2016 was 6.2%, 6% and 8.3%, respectively.

If data for the December 2016 quarter alone is analysed then November and December were predictably weaker in terms of growth levels vis-à-vis October, Kantar Worldpanel said.

From 9.9% in October 2016, FMCG sales growth fell to 2.7% in November, recovering marginally in December to touch 3.5%, the market research agency said.

The just-released numbers also proves what many FMCG chief executives have been saying of late about demonetisation: That even as the ban on high-value currency was devastating, it has been coming off slowly but steadily.

This point was reiterated by Sanjiv Mehta, managing director & chief executive officer of the country’s largest consumer goods company, Hindustan Unilever (HUL), recently.

“January was better than December and December was better than November,” Mehta said, while announcing HUL’s third-quarter results last month.

Source: Kantar Worldpanel, part of the WPP Group

Adi Godrej, chairman, Godrej Group, had also said in a conversation with Business Standard recently that the demonetisation effect was fast wearing off and that the remonetisation effort was gaining ground. 

“Add to this the general Budget with its thrust on rural development, agriculture, housing, electrification and infrastructure and it bodes well for people, including those in villages. Consumption will get a boost,” Godrej said.

Analysts expect the March quarter numbers of consumer goods companies will not show much of a demonetisation impact on sales. The top line could improve, as effects of the government’s rural and agricultural push in the Union Budget begin to be felt during the course of the year. The challenge, however, would be managing rising input costs, an analyst said.

“A year ago, we were staring at a deflationary environment as commodity prices, including the price of crude oil, collapsed. The situation has now reversed, as the price of crude oil has inched up to $57 a barrel and could touch $60 in the near term,” said G Chokkalingam, founder, Equinomics Research & Advisory.

The deflationary environment aided profit growth for FMCG companies in the first three quarters of 2016. The gap between profit and sales growth shrank in the December quarter, as demonetisation kept sales low and rising input costs pulled down profits.