Modern Retail Survives The Demonetisation Storm While Small Stores Wilt
Mom-and-pop stores still suffer post demonetisation while modern retailers thrive.
The retail sector was the first pain point to emerge after the government decided to withdraw Rs 500 and Rs 1,000 notes from circulation.
Sales crashed as people, literally, had no currency to give in return for their purchases. From vegetable sellers to mom-and-pop stores and large organised retail chains, all felt the heat. Slowly though, retailers who had digital payment options started to get business back while the others continued to struggle.
Nearly 50 days after the demonetisation decision was announced, that divide continues.
At the aggregate level, it is difficult to assess the extent to which consumer demand contracted due to the shortage of cash.
According a December 23 report from market research firm Nielsen, the fast moving consumer goods sector saw a 1.2 percent net negative impact on consumer sales in value terms. “While a 1-1.5 percent net impact of demonetisation does not look huge, with the size of the FMCG industry at Rs 2.56 lakh crore, this is a large drop in absolute value terms,” said Nieslen.
The categories that were worst impacted included impulse foods and personal care items, said Nielsen while adding that the one segment that had benefited the most was the packaged grocery segment.
The market research agency also highlighted that demonetisation has led to a shift towards modern retail where digital payment options were available. Consumers, who, for instance, may have been purchasing vegetables from their local street-cart vendor now moved to buying from organised retailers to avoid shelling out cash.
Every second consumer has chosen modern retail and online for household purchases like food essentials including atta, rice, and oil. The shift is perceptible in categories of household (laundry, floor cleaner, utensil cleaner), personal care products (lotions, soaps, shampoos, etc.) and daily staples (milk, curd, fruits, and vegetables). In fact, two-thirds of housewives we reached out to, have shifted to either supermarkets or online stores post demonetisation as compared to half of the students.Nielsen Report (December 23)
The Modern Retail Boost
Heritage Retail Ltd., a south-India based modern retailer said that it has seen its footfalls increase by 10-15 percent, which in turn has pushed up sales by 20-25 percent since demonetisation.
The retailer saw an increase of about 15-20 percent in Hyderabad and Bengaluru and a 5 percent increase in sales in the Chennai market, Dharmendra Matai, chief operating officer for Heritage Foods (Retail And Bakery Division) said in response to an email query from BloombergQuint. Post-demonetisation, consumers have switched to other modes of payment which has benefited the retailer, said Matai.
According to the Nielsen report quoted above, there has been a 15 percent increase in the use of alternate modes of payment such as debit or credit cards, mobile wallets, and net banking. Consumers are willing to shift to digital payments permanently in some categories but still prefer cash for purchases in other categories like fruits and vegetables.
Some organized retailers have also chosen to give customers incentives to go digital.
Reliance Retail Ltd., for instance, is offering a ten percent cash back for customers who use Jio money and a 5 percent cash back on transactions above Rs 500 till January 31, 2017.
A spokesperson for the Retailers Association of India told BloombergQuint that while overall retail has taken a hit, modern retailers have managed to achieve 85 percent of their targets.
Mom-And-Pop Stores Feel The Pinch
Small retailers have been the biggest losers of the currency crunch that has now lasted 50 days and threatens to spill over into the new year as well. Retailers that BloombergQuint spoke to remain optimistic that things will improve soon and some say they have started to adopt digital payment solutions to ease the pressure on business.
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“Consumers only buy groceries and refrain from buying items like biscuits post demonetisation,” said Amit Somaiya, owner of New Jai Jalaram Stores in Malad, Mumbai. Somaiya has seen sales nosedive by 60 percent post demonetisation.
A stone’s throw away from Somaiya’s store is the Pramanik Store owned by Mayur Gala. He told BloombergQuint that there has been some pickup in demand post December 15 but added the shortfall remains significant.
“Demand has fallen by approximately 40 percent, however there has been a slight increase in demand post December 15,” Gala said.
At the Anmol General Stores, in the same locality, Dheeraj Bhai, told BloombergQuint that he expects the situation to ease in the new year as new currency notes start circulating in the system. He has witnessed a 40 percent decline in sales post demonetisation. Customers are also buying groceries in smaller quantities and have stopped stocking up like before, he added.
How Quickly Will Demand Normalise?
The answer to that question is not clear to anyone. Most economists are building in a two-three quarter hit to the economy as a result of demonetisation. A survey conducted by Nielsen as part of its report quoted above also suggests that some impact will be seen at least till March 2017.
Demonetisation has created a ripple towards the end of 2016, which may send waves well into 2017. Hence, as we look into the future, we need to be cautious as well as shore up resources and actions that we take on availability, trade format choices and brand investments. Overall, there is much to gain with adaptive strategies and the right insights.Nielsen Report (December 23)
Others sound more optimistic.
Arvind Singhal, chairman of Technopak Advisors said that the situation has started to stabilise across different formats of retail. He also sees the situation getting better in smaller towns as the supply of cash picks up.