Festive sales: Urban consumer demand rising but inflation, raw material prices a roadblock, say experts

In this special edition of ‘It’s the Economy’, CNBC-TV18’s Latha Venkatesh spoke to Sunil D'Souza, MD & CEO of Tata Consumer Products, B Krishna Rao, Sr Category Head at Parle, and AK Tyagi, Executive Director of Haldiram Snacks, to discuss the consumption centimetre in this festive season.

On snacks business, Tyagi said, “The demand has definitely increased as compared to last Diwali. What we estimate with the current demand and current football in our QSR (quick service restaurant) and also in FMCG business, is that the Diwali of 2021 will be much better than Diwali 2020 but there will not be better growth compared to Diwali 2019.”

He added, “Due to inflation, increase in raw material prices, it will be impacting but overall, we can say it will be better than 2020. We are looking at better growth in Diwali of 2022.”

On FMCG demand, D'Souza said, “Given where we are with vaccinations, with the economy opening up, I do see positives going forward. There is a slight bit of a dip in rural demand, but I don't see anything fundamentally wrong in rural because the monsoon has been good, MSPs have been good, government intervention has been good. For Tata Consumer, we see the category growth coming back to normalcy and more importantly, we are on a share growth trajectory. So, we do you see a good number going ahead.”

On inflation, he said, “Inflation on the other hand, for us in the beverage, tea business, we see inflation coming down with tea prices normalizing. But on the other side, on the food business, we do see fuel, freight, packaging, all that inching up and we have got to tackle that.”

On price increase, Rao said, “It is a very, very sensitive part of overall business. We have observed that anywhere about 15 percent price increase, direct or indirect is well taken by the consumers, but anything beyond that, there is definitely a resistance and there is a fall in demand is what we have observed. So, we will have to trade extremely cautiously.”

On urban consumption, D'Souza said, “The urban consumer is coming back far faster because the pace of vaccinations is faster in the urban areas, people are feeling more confident. I would say in rural, semi-urban areas, what has happened is in the second wave of COVID it hit them hard and therefore people are a bit cautious. I would say as vaccination progresses, you will see progressive improvement here.”