Demonetisation impact: Data shows 20-40% drop in FMCG sales

The government’s move to scrap Rs 500 and Rs 1,000 currency notes has had an adverse impact in several fast moving consumer goods categories such as biscuits and salty snacks, where sales have declined by up to 40%, according to data from market research agency Nielsen.

The government’s move to scrap Rs 500 and Rs 1,000 currency notes has had an adverse impact in several fast moving consumer goods categories such as biscuits and salty snacks, where sales have declined by up to 40%, according to data from market research agency Nielsen.

There has been a 20-40% fall in sales of biscuits, salty snacks, toilet soaps, shampoos and washing powders, the data from Nielsen shows. Sales of refined oil, agarbattis, beverages and packaged tea fell about 3-4%.

“There has been an impact on sales particularly in impulse categories, although we believe things should ease out soon,” said Saugata Gupta, MD, Marico. Customers may also be down trading to smaller pack sizes in the near-term to conserve cash.

The small kirana stores are caught between the drop in sales on one side and wholesalers stopping visits to these outlets, particularly in small towns in the wake of the liquidity crunch.

Nielsen said its survey of over 750 stores showed, “70% stores reported that due to cash-crunch on both purchase as well as sales, their business has come down in the last few days. Many wholesalers/distributors have stopped visits to small towns and rural areas compounding the problem.”

The situation is getting difficult as only 1% stores accept non-cash payments like debit cards or mobile wallets or meal vouchers.

The modern cash and carry stores have also seen sales drop. According to Nielsen, sales in these cash and carry outlets declined 1% in the week after demonetisation was announced, versus a 14% year-to-date growth till November 6.

“There has been almost 40-50% impact on FMCG sales. Challenge is particularly in the wholesale segment, which is a very cash driven part of the channel and there things have come to a standstill,” Vivek Gambhir, managing director of Godrej Consumer Products said.

Due to the impact on trade, companies have taken select actions to alleviate stress in working capital for trade channel partners. “Some companies have extended credit timelines for distributors,” said Gautam Duggad, head of research at brokerage Motilal Oswal.

The wholesale segment drives almost 40% of the FMCG business, so companies such as Godrej and Marico are mulling incentives for them.

Several companies are also considering production cuts if the situation doesn’t ease by mid-December. Godrej has recently said it may have to cut production in certain categories, while Varun Berry, MD of Britannia Industries maintained that the company may cut production to check supply in the market.