By Ratna Bhushan & Prachi Verma, ET Bureau
NEW DELHI: Achhe din is back in sight for consumer goods companies, with the industry expecting consumption to bounce back from as early as next quarter as the impact of demonetisation fades away.
The cash crunch post demonetisation did hurt them, said top industry executives. But they don’t expect it to last long or cause job losses. In fact, some of them have even started stepping up hiring in anticipation of a demand revival.
“We have seen headwinds on demand, but there is no freeze on hiring or bonuses as growth will be back in the second and third quarters (of calendar 2017), and we have to be ready for that,” said Varun Berry, managing director at biscuit maker Britannia.
PepsiCo India chairman D Shivakumar acknowledged the impact of demonetisation on the consumer goods industry. “But we are hiring in expectation of a consumption revival,” he added.
Nestle, Procter & Gamble and Dabur also made similar views. Hindustan Unilever said it is business as usual for the company.
Headhunters from Transearch, GlobalHunt and Korn Ferry said there was a slowdown in hiring at junior or middle levels in the FMCG sector after the November 8 demonetisation announcement, but that has changed now. In senior positions, there wasn’t any impact, they said.
Neighbourhood stores that transact mostly in cash were among the biggest casualties of demonetisation, even as consumers visited modern retail outlets more frequently and paid electronically, cushioning the impact for the FMCG industry, company executives said. Across channels, the hit was mostly on non-premium categories targeting consumers with least purchasing power, but the highermargin premium products remained mostly insulated from the demand slowdown.
While the situation is improving for both kirana stores and the organised ones in cities and big towns with easing money supply, rural markets remain a concern, said experts.
“There was impact on demand and it was severe across consumer staples, considering that almost 90% of the sales traditionally happen across mom-and-pop stores,” Deloitte India partner Anil Talreja said. “But a demand and consumption recovery phase is kicking in and banks are returning to a level of normalcy. However, demand recovery in rural markets will take more time as transactions have been almost entirely cash dependent.”
Rajat Wahi, partner and head (consumer markets) at KPMG, said even December was looking up in terms of demand, though the challenges on rural markets persisted.
Arecent report from market researcher Nielsen confirmed the increasing consumer preference towards modern retail. With uncertainty over the availability of cash during November-December, modern trade shoppers took the opportunity to stock up, encouraged also by promotions and discounts from retailers and FMCG companies.
In the two weeks after the currency ban, modern trade grew five times at a time when 70% neighbourhood groceries reported a fall in business, it said.
Dabur chief executive Sunil Duggal said modern trade was an outperformer during the period of cash crunch that put pressure on the consumer goods industry. “We expect revival April onwards,” he added.
According to the Nielsen report, even for grocery purchases, modern retail and online have become the channels of choice for many.
This was perceptible in categories of household items (laundry, floor cleaner and utensil cleaner), personal care products (lotions, soaps and shampoos) and daily staples (milk, curd, fruits and vegetables). In the two weeks after demonetisation, packaged grocery saw 44% growth in modern retail sales compared with a year earlier, it said.
Meanwhile, hirings at consumer goods companies are back to normal or picking up after a slowdown, executive search firms said, suggesting it as an indicator of improving demand situation in the industry.
Hiring was slightly impacted till last month but that it is “back on track”, said GlobalHunt MD Sunil Goel.