Retail inflation foretells a summer of discontent
Premium- Rising prices will be a disappointment for buyers whose household budgets have already been hit on account of pandemic-related business losses or job losses
Last week, the Indian Meteorological Department (IMD) said most parts of north and central India are reeling under heat for several weeks and that the country will see a hot and dry April. The forecast augurs well for makers of consumer durables and appliances such as air conditioners, refrigerators, coolers, and fans. Companies in the sector have reported brisk sales. However, they have also flagged inflationary pressures which forced them to increase retail prices multiple times in the last 6-8 months.
Rising prices will be a disappointment for buyers whose household budgets have already been hit on account of pandemic-related business losses or job losses. Experts in the sector said there may be a replacement market and a bit of pent-up demand for these products, and the numbers look good against the low base of pandemic years.
Despite various surveys pointing to consumer confidence inching up, retail experts said they do not see any signs of a great consumption revival as people’s incomes have not increased.
In fact, Indian consumers have turned to buying smaller or lower-priced packs for both food and personal care products, said Arvind Singhal, chairman at consulting firm Technopak Advisors. The trend has been captured by retail intelligence platform Bizom that tracks more than 7 million retail stores. It said contribution of low-priced packs to overall sales in beverages, personal care and commodities moved up by 2%, 4%, and 10.5%, respectively, in rural India between January and first week of March. In urban India, the contribution of cheaper packs in confectionery, commodities, home care, and packaged foods moved up by 2.8%, 2.9%, 5.9%, and 13.7%, respectively. Price inflation was at the root of this shift, Bizom said.
To analyse consumption trends, brokerage firm ICICI Securities interviewed heads of large packaged consumer goods firms recently. Saugata Gupta, managing director (MD) and chief executive officer (CEO), Marico Ltd, told its analysts that food inflation, general inflation (petrol and diesel), and input cost inflation have made the situation unique and that food and packaged consumer goods inflation lead to down trading. Dabur India’s CEO Mohit Malhotra too admitted inflation is a big issue and that growth is coming from pricing, while volumes are flattish. On volume growth, overall, the industry is declining and the situation is likely to remain the same for some time due to inflation. Consumers’ wallet is shrinking, and at the same time, opening-up is also leading to increasing spends in out-of-home categories, Malhotra told ICICI Securities.
Technopak’s Singhal agreed that people who have disposable incomes are spending more on services such as travel, leisure and eating out. In his view, of the total working population of about 550 million people, the number of people actually having steady jobs may be 30-40 million. The others are all in farm sector or self-employed, or daily workers.
“So, those few millions do not move needle and drive overall consumption. You need to create more people in the so-called middle class who can buy electronics and appliances for the first time," he said.
Of course, some companies are smart, have done well and gained market share at others’ expense. Kitchen and home appliances company Wonderchef may just be one such firm. Its MD and co-founder Ravi Saxena said the company that makes nearly 600 appliances from mixies and toasters to coffee machines grew 30% last year and is expected to grow 30-40% this year. “We are still young and in growth mode and offer premium appliances. We grew in pandemic because people were cooking at home and then we successfully pivoted to a D2C brand with about 45 to 50% of our sales coming from the internet."
However, he said almost every crisis around the world makes the poor poorer and the rich richer. “The two years of covid have certainly reduced the overall consumer power of India. As soon as covid receded, the Russia-Ukraine crisis raised its head, fuelling inflation further," he said.
Such uncertainty shakes the confidence of making discretionary purchases and consumer sentiment suffers. Of course, consumers are stepping out and visiting malls, probably just to feel normal. “But the stores may be empty. I would not say that the consumer is rocking just yet," he said.
Shuchi Bansal is Mint’s media, marketing and advertising editor. Ordinary Post will look at pre-ssing issues related to all three. Or just fun stuff.
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