Digital wallets, retail chains reap the benefits of demonetisation

Value growth for modern retail increased to 21.1% in the week of 7-13 November, while digital wallet firms saw installations double in the week following 8 November


The government’s move also led to a change in consumer behaviour, with people spending only on essentials and small packs and holding on to their small change. Photo: Abhijit Bhatlekar/Mint
The government’s move also led to a change in consumer behaviour, with people spending only on essentials and small packs and holding on to their small change. Photo: Abhijit Bhatlekar/Mint

Mumbai: Digital wallet companies and modern trade are the biggest beneficiaries of the government’s demonetisation initiative with installations of digital wallets doubling in the first week following the announcement on 8 November.

Likewise, value growth for modern trade increased to 21.1% in the week of 7-13 November, compared with 4.4% during the year-to-date period till November, Nielsen said in its second report on demonetisation.

Traditional distribution and retail channels, which account for 92% of consumer packaged goods sales, have seen sales slow down due to the liquidity crunch. After the announcement, 54% of the dealers are facing issues related to stock replenishment, both in the urban and the rural areas, as wholesalers and distributors are not visiting them as per planned schedules.

To be sure, distributors and wholesalers are feeling the heat as well as sales are not happening because retailers do not have the cash to buy more stock, said the report.

Even organized cash-and-carry or wholesale channels with companies such as Wal-Mart India Pvt. Ltd are feeling the pain. Metro Cash and Carry India Pvt. Ltd, which was growing at 14% in the year-to-date, saw its growth shrink by 1% in the first week following the demonetisation announcement, Nielsen said.

The government’s move also led to a change in consumer behaviour, with people spending only on essentials and small packs and holding on to their small change as over 80% of India’s currency went out of circulation with the withdrawal of Rs500 and Rs1,000 notes.

Retailers have stocked up on essential goods in anticipation of higher consumer demand.

“The slowdown was primarily due to non-food categories. Among non-food categories, personal care women was least affected while personal care-general saw a bigger impact,” Nielsen’s report said.

In food, too, impulse food witnessed the steepest decline in demand, while cooking oil and packaged grocery saw a huge demand from retailers on the back of the belief that consumers would stock up on essentials in the wake of the cash crunch, said the report.

“The sales mix is changing in favour of essentials,” said Damodar Mall, chief executive officer, grocery, at Reliance Retail Ltd, adding that the firm has increased the availability of items such as staples, fruits and vegetables at its super and hypermarket chains Reliance Fresh and Reliance Smart.

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