Demonetisation Woes: Stock Accumulation, Production Cuts Worry FMCG Sector  

New Delhi: With limited liquidity in the economy following the government's demonetisation move, the fast-moving consumer goods (FMCG) sector is resorting to production cuts due to accumulation of stock.

After the 1,000 and 500-rupee notes were banned by the government on November 8, distribution channels and consumption levels have been disturbed, leading to an overall impact on the sector.

The wholesale stores too are under stress as sales at these "cash and carry" outlets have slowed down.

Desai predicted that there would be impact of at least 25-30 per cent on the volumes during this sales cycle in traditional trade, which accounts for 72 per cent of overall sales for the FMCG sector.

Research showed that the food and consumer products took a leap in sales post-demonetisation. The sudden spurt was seen as most of the retailers accepted old currencies.

"When the news broke on the evening of November 8, retailers were quick to leverage SMS notifications to spread the word that they were accepting old notes, besides extending working hours all the way to midnight, leading to a jump in sales," said Prasun Basu, President, South Asia, of Nielsen.

"With uncertainty over availability of cash during the November-December period, or whether the local grocer would be willing/able to transact in cash, shoppers took the opportunity to stock-up. What aided sales were promotions and discounts offered by retailers," he said.

The food products segment, which accounts for almost 43 per cent of the overall market, received a mixed response with certain categories having witnessed a surge in buying activity, whereas other categories saw a dip in demand from retailers.

According to a report "Demonetisation - The Nielsen View", foods witnessed the highest increase in growth during the demonetisation week at 19 per cent as compared to a year ago, with packaged grocery and cooking medium displaying the highest growth.

However, the study revealed a much slower growth in the impulse categories such as biscuits, chocolates, salty snacks and confectionery.

Experts are of the view that with spending cuts visible in the economy, trade channels involving higher value transactions might take longer to recover.

--IANS