Consumer Goods Companies Battling Slowdown On Grounds Of Weak Demand

Not only car and bike manufacturers are seeing a sales slowdown, the  consumer goods companies are also going through complains of declining demands. This may lead to job losses. To be precise, biscuit manufacturers are likely to suffer the most which means that the consumers are wary of buying even low-priced items.

On Wednesday, Parle Products, a leading domestic biscuit maker, said that it might lay off up to 10,000 workers as slowing economic growth and falling demand in the rural heartland could lead it to resort to production cuts.

A sharp drop in Parle’s biscuit sales means the company may have to slash production, which may result in layoffs of 8,000-10,000 people, Mayank Shah, category head at Parle, told Reuters.

“The situation is so bad, that if the government doesn’t intervene immediately… we may be forced to eliminate these positions,” he said.

Commenting on the turmoil in the consumer space, Britannia’s managing director Varun Berry recently said, “We have grown only 6% and the market is growing slower than that. And that’s a little bit of a worry, because even for a `5 product if the consumer is thinking twice before buying it, then there is some serious issue in the economy.” Berry was speaking in the company’s latest earnings call.

Britannia like some other corporates has also cut back on capex plans due to the current environment. The company has not employed any capital in its dairy business, Berry said in the analyst call. “In the dairy business for the milkshakes, we’ve employed no capital at all. It’s all third-party. Our manufacturing is done by a third-party. Similarly for wafers, we have started the business with a third-party — with, in fact, two third parties, who are making our products. But yes, even if we were to employ the capital today, which we are not doing, we will get a payback in four years. So we have done the numbers, but we have still said that the times are tough, so in certain categories, we should make sure that the capital is employed at the right time”.

Similarly, during the April-June quarter, FMCG major Hindustan Unilever reported a rise in revenues of just 6.61% year-on-year, owing to weak volumes which grew at only 5% y-o-y, the slowest in seven quarters. HUL’s chief financial officer Srinivas Phatak said the firm expects demand to remain subdued in the near term. “We expect the near-term demand to remain a bit subdued given the macroeconomic environment. Commodities and currency will continue to remain volatile,” he said.

Coming back to Parle, the company employs about 100,000 people, including direct and contract workers across 10 company-owned facilities and 125 contract manufacturing plants.

Shah said demand for popular Parle biscuit brands such as Parle-G had been worsening since the roll out of goods and services tax (GST) in 2017, which imposed a higher levy on biscuits costing as low as Rs 5.

The higher taxes have forced Parle to offer fewer biscuits in each pack, hitting demand from lower-income consumers in rural India which contributes more than half of Parle’s revenues.

“Consumers here are extremely price-sensitive. They’re extremely conscious of how many biscuits they are getting for a particular price,” Shah said.

In the auto space, poor retail sales due to weak consumer demand has left dealers saddled with high inventory, which saw sales across segments witnessing its sharpest decline in nearly 19 years in July, dropping 18.71% on a year-on-year basis.

The previous biggest decline across overall domestic automobile sales was recorded in December 2000 when it fell 21.81%. “The data shows how urgent the need is for revival package from the government. There is urgent need for some kind of action. The industry is doing all it can to promote sales. I think this is the time when the industry really needs the support of government coming out with a revival package,” Vishnu Mathur, director-general, Society of Indian Automobile manufacturers (Siam), said commenting on the sales data.

The auto industry has sought reduction in GST rate, introduction of vehicle scrappage policy, revival of NBFC sector as sales are mostly dependent on availability of finance and delay in implementation of the proposed increase in vehicle registration fees.

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