Big Retail’s woes zap FMCG firms

Anshu Singh, a 32-year-old resident of Mumbai, would occasionally shop at the new hypermarket in her neighbourhood, until the downturn. Since the past two months, she has not stepped into the retail store. “Our regular visits to the malls have also reduced. Now, I call up the neighbourhood kiranas for my grocery needs,” she says.

Anshu Singh is not alone. Many others have also cut down on their trips to malls and hyper stores, given the inflation and a slowdown in the global economy.

Direct translation of this practice into business terms would mean a fall in revenue growth for the manufacturers of fast moving consumer goods in modern retail.

For example, Godrej Consumer Products Ltd is seeing lesser-than-usual 35% growth in business from modern retail.

Hoshedar K Press, executive director and president, GCPL, says, “Modern retail, which contributes 6% to our revenues, has seen deceleration in the last quarter. While some retailers themselves reduced their order quantities, the company stopped supplies to some on its own due to payment issues.”

Other companies have similar stories to share.

Modern retail generally contributes 8-10% to Marico’s total revenues but this share has fallen since the last quarter, said a company official. Wipro Consumer Care has also seen a flattish growth in its modern retail sales from 25% growth seen earlier.

Anil Chugh, senior vice president— sales and marketing, Wipro Consumer Care and Lighting, says, “An increase in offtake from these stores, along with their rapid expansion was the reason for the growth in the company’s business from modern retail.” The offtake has fallen with lower footfalls at malls and expansion plans for most retailers have also come to a standstill, he adds.

According to Chugh, smaller chains such as D-Mart or Metro continue to grow, unlike the biggies.

nalysts say fall in revenues from modern retail was a consequence of lower footfalls in malls. Family outings to malls have reduced as consumers are uncertain of economic conditions and are refraining from discretionary spending.

But, is lower revenue from modern retail really hurting FMCG companies?

Sunil Duggal, chief executive officer, Dabur India, thinks otherwise. He says the slowdown in modern retail has been more than compensated by traditional trade and rural markets. “Modern retail never really took off as expected and still contributes just 3-5% to our revenues,” he says.

Traditional trade, it seems, is benefiting from the current slowdown.

“In Mumbai, we have seen a growth in the traditional trade channel recently,” says
Wipro Consumer Care’s Chugh.

Consumers are switching back to mom-and-pop stores as shutters come down on several loss-making modern retail stores.

In fact, the picture is worse for modern retailers themselves.

Few are struggling with empty shelves as FMCG manufacturers cut supplies on account of high debts and delayed payments.  Several others have reduced their orders as they deal with an inventory pile up. Across-the-board, supplies to modern retailers have been curtailed, said another official of an FMCG firm.