Note ban hits consumer packaged goods sales, supply chain

Consumers making only essential purchases, trucks stalled on highways for want of cash


The inability of kirana shops to sell to customers because of the lack of small notes is rippling upwards through the supply chain. Photo: Mint
The inability of kirana shops to sell to customers because of the lack of small notes is rippling upwards through the supply chain. Photo: Mint

Mumbai/Bengaluru: The cash shortage is breaking down the supply chains of packaged consumer goods companies. As consumers hold on to their Rs100 and Rs50 notes to make only the most essential of purchases, sales have slowed to a trickle in several areas, retailers, distributors and stockists say.

Snacks and chocolates are being forgone by consumers to save money for staples such as salt and flour.

“The consumer doesn’t have money. The sales at retail outlets have gone down,” said Varun Berry, managing director at Britannia Industries Ltd, the maker of Good Day biscuits and cakes. “The best are probably down by 40%, the worst are down by 70-75%. Outlet sales are down and hence the reorders are down.”

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A paucity of cash has jammed movement of trucks as well, and consumer goods makers say it is just a matter of time before this slowdown hits their manufacturing.

“There has been a big impact… (even in) chain stores. Traders are taking in the stock, but consumers do not have money to buy the product,” P.C. Musthafa, co- founder, iD Fresh Food (India) Pvt. Ltd, which supplies six million parathas and batter for a million idlis daily. 

The Rs2.6-trillion packaged goods industry mostly transacts in cash at the lower level of the supply chain. A majority of the nine million retailers in India are kirana, or mom-and-pop, stores that deal only in cash. Their inability to sell to customers because of a lack of smaller denomination bank notes is rippling upwards through the supply chain.

“Our business has reduced by 60-70%,” said Jitendra Agarwal, a Nashik-based stockist and distributor for companies such as Dabur India Ltd and Marico Ltd. Even in bigger cities, such as Mumbai and Bengaluru, distributors have complained that business has halved over the past week.

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“The only thing people are buying is cigarettes and that too single sticks. But distributors are refusing to supply unless they are paid in new notes. Where do I get it from?” asks Shafi who uses only one name and runs a small store selling cigarettes, personal care products and accessories in Bengaluru.

Britannia’s Berry said the biscuit maker has extended credit to its distributors so that they will do the same to their retail partners, in an attempt to deal with the liquidity crunch. Some like Rajiv Gogri, a Dabur distributor in Mumbai, are trying to extend the payment period for some customers.

But experts say this is unlikely to have a big impact since the bulk of retailers buy from wholesalers who have no access to credit facilities. 

“The wholesale-led market is likely to bleed far more in the days to come,” said a 16 November report from research firm Nielsen which surveyed 750 stores over the past 48 hours. It said two-thirds of stores were finding it difficult to buy stock and said many wholesalers and distributors had stopped visits to small towns and rural areas, compounding the problem.

Analysts with investment bank Credit Suisse expect the packaged goods industry slowdown to last for three months due to the lack of liquidity, they said in a 16 November note.

“In this one week, we have seen a 20-25% drop in primary billing to our distributors,” said Angshu Mallick, chief operating officer, Adani Wilmar Ltd, maker of Fortune edible oils. He said the company was seeing a bigger drop in bulk packs like 15kg units, primarily bought for consumption in hotels and for weddings.

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Even in cases where sparse cash or credit is lubricating transactions, there is another challenge: logistics.

“Everything has come to a standstill,” said Inderbir Singh, managing director at ABC Transport Co. Ltd, a trucker. “How does the driver meet petty expenses?” The shortage of lower denomination notes has made eating at a dhaba, loading, unloading and even paying for the wear and tear of the vehicle a challenge, leading to loaded trucks parked on the side of highways. 

The bigger worry for smaller packaged goods makers is the impact this slowdown will have on their own manufacturing operations. “We are also concerned with productivity. Now, if we reach a threshold limit (of inventory), we have to stop production. We are hoping things will ease in coming days with normalization of cash flows,” said Ravindra Modi, managing director at Hyderabad Food Products (P) Ltd, a maker of spices and cooking pastes.

Separately, packaged consumer food makers, through the lobby group Confederation of Indian Industry, are planning to make a presentation to the government early next week requesting an easing of liquidity for their channel partners such as increased overdraft facilities. 

Shally Seth Mohile in Mumbai, Sharan Poovanna, Preeti Zachariah in Bengaluru and Viswanath Pilla in Hyderabad contributed to this story.

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