This week in FMCG and Retail: Consumer demand starts to revive, but input cost pressures remain

FMCG companies too say they are seeing this trend. While sales may have fallen for FMCG companies this year amid kirana stores having restricted timings in most states, unlike last year, companies amped up their supply chains making them more efficient and less susceptible to disruptions. Now with store timings being extended and restrictions easing, a faster bounce-back in sales is likely.

Marico for example, said in a business update on Friday that it saw a lesser impact on its business in the second COVID-19 wave as compared to last year as supply chains were evolved enough to cope with localized and staggered lockdowns.

The company said that the healthy momentum in demand in March sustained for the first three weeks of April until the second COVID-19 surge in India hit alarming levels. However, the overall demand has been trending better since early June.

Marico said it delivered revenue growth of 30 percent for its India business backed by double-digital volume growth. But of course, this has to be taken with a pinch of salt because this was the most impacted quarter for all companies last year and hence the base is low. The underlying volume declined by 14 percent for Marico in the same quarter last year impacted by the nationwide lockdown.

Other FMCG majors such as Dabur, PepsiCo India and Parle Products too, told CNBC-TV18 that they are seeing an uptick in consumer demand in June as curbs ease.

But even as sales improve, input cost pressures haven’t eased much. This would mean that monthly grocery bills will continue to pinch the pockets of consumers. Prices of edible oils, pulses, soaps, among others have seen steep inflation in the past few months.

Most recently, Amul too, has hiked milk prices by Rs 2 citing higher input costs especially that of transportation, logistics and packaging.

The price hike hasn’t been limited to just FMCG products. White goods too have seen steep price hikes in the past six months on the back of rising commodity prices and more hikes are likely.

In fact, buying a new television set, air conditioner, refrigerator, or any other home appliance is set to get costlier by 3-4 percent from July with no respite in rising prices of commodities such as steel, copper and aluminum.

The global shortage of semiconductors and LED panels also persists, which would now mean that television prices will also see further hikes. Smart TV prices already increased by 30-60 percent so far this year compared to last year.

And this is putting brands in a fix. There has been a slump in demand and sales in the past three months because appliance stores were shut in most states partly in April and throughout May. Currently, only 70-80 percent of the market has opened up.

So if companies need demand to bounce back, they will have to try and keep their products affordable. But doing that too is becoming extremely difficult due to rising input costs. So what most players are doing is taking price hikes in 2-3 tranches to try and maintain a balance in a bid to shore up sales again.

The week, however, ended with good news to retail and wholesale traders in the country with the government now including retail and wholesale trade in MSMEs. This is significant because this will help COVID-impacted traders gain access to a number of sops and schemes that are currently available to the industry. This would include priority sector lending, much-needed access to capital that was earlier denied by banks. Smaller traders will also be able to avail of Resolution Framework for COVID-19-related stress announced by the Reserve Bank of India (RBI).

With stores being shut across the country for months together in the past year, it was the smaller retailers that were hit the hardest. Even if they were to try and revive their businesses as the country unlocked, the capital they needed to restart their businesses wasn’t available. Industry bodies also welcomed the move, saying it will benefit over 13 million smaller retailers in the country.

But implementation will now be key and we will have to see how receptive financial institutions are to the move, and if this decision will indeed help formalise lakhs of traders who can now register on the Udyam portal and avail MSME benefits.