Notwithstanding the impact of the depreciating rupee and high crude oil prices ahead of the festive season, Indian companies in the FMCG, consumer durables, retail, e-commerce and automobile sectors expect steady volume growth this upcoming festive season, aided by strong rural and urban demand.
While urban consumption in these segments has been stable over the past few quarters, rural consumption is getting back to normal as the impact of demonetization and GST roll-out normalises.
India’s consumer inflation in August 2018 eased to 3.69% compared to 4.17% in July as per data released by Central Statistics Office (CSO) on 12 September. The CSO also forecasts GDP growth at 8.2% in the first quarter of FY19, a steep rise from 5.6% in the same quarter of 2017.
Kaustubh Pawaskar, senior research analyst, FMCG and consumer discretionary at equity broking firm, Sharekhan says that the prices realised by consumer-focused product companies this festive season may be better as "companies might go for gradual price hikes in the backdrop of rising crude prices and depreciating rupee."
"This will help most companies post decent revenue growth in the coming quarters,” Pawaskar said. He expects companies in these sectors to post low double-digit to mid-teen revenue growth in percentage terms in the October-December 2018 quarter, after a slightly muted July-September 2018 quarter, due to the impact of the Kerala floods.
Industry experts are unanimous in their outlook that given the fact that this is a pre-election year, the government will put in more efforts to improve the rural economy. The government recently hiked the minimum support prices for a bunch of agricultural products. This, in turn, will further aid demand growth by putting more disposable income in the pockets of rural consumers.
The festive season in 2017 lacked sparkle for consumer goods firms as they had to clear existing inventory before GST came into effect on July 1, 2017. The festive period, starting with Onam and followed by Durga Puja, Dussehra and Diwali – accounts for 28 - 30% of annual sales of consumer durable firms like Godrej Appliances. The company is targeting 30% growth in sales as compared to the same period last year, despite a subdued Onam due to the Kerala Floods. It plans to launch as many as 40 new models across categories such as frost-free refrigerators and fully automatic washing machines.
However, inputs costs of home appliances have risen steeply due to increasing commodity prices and a weakening rupee. While the revision of GST rate on electrical appliances to 18% from 28% earlier, with effect from July 2018, came as a great relief to the appliances industry, the further depreciation of the rupee has made air- conditioners, refrigerators, washing machines and microwave ovens dearer by 3.5% – 4%, depending on the content of imports,” says Kamal Nandi, business head and executive vice president, Godrej Appliances. For white goods, this reverses about 50% of the GST benefits that were passed on to the consumers; post the GST revisions in the month of July.
“Compared to the summer however, prices will still be lower by about 3.5 - 4%. This should lead to a spurt in demand compared to the summer months and the industry should still see double-digit growth in demand during the festive season," Nandi says.
Though monsoons have been below normal this year, they will not have a material impact on demand, consumer goods companies feel. Lalit Malik, chief financial officer of Dabur India says that while the monsoons have been sub-par, it hasn't been materially adverse; and coupled with potentially higher government spending in a pre-election year; consumer goods sales should look healthy.
Traditionally, FMCG majors include like Coca-Cola, Nestle, and Dabur India launch specially crafted gift packs for the festive season. This year looks no different.
Coca-Cola India that has achieved four consecutive quarters of double-digit revenue growth and two quarters of double-digit volume growth in 2018 too bets big on the festive season. We have “performed consistently over the last few quarters and placed India firmly as one of the top three growth markets of the Coca-Cola Company’s key engines of future growth. This growth was led by equal play in all categories (sparkling and still beverages) and we expect growth to continue on the same lines for 2018,” said Srideep Kesavan, director – juices, Coca-Cola India, confirming that company has lined up a series of brand and product activations for the festive season. Coca-Cola ventured into the space of ‘health and wellness’ beverages with the launch of Minute Maid Smoothie in September 2018.
Dabur, too, will launch specially crafted packs of its 'Real' range of fruit juices, and plans to aggressively target younger consumers on e-commerce platforms, Malik said.
E-commerce majors gear up for fierce battle
The sale of online retailers during the five days of festive sales in October 2018 might double year-on-year, according to RedSeer Management Consulting Pvt. Ltd. RedSeer pegs the expected total gross merchandise value (GMV), or the value of goods sold on the online platforms over these five days at $2.5-3 billion, up from $1.5 billion last year. It also expects 20 million shoppers to shop on these platforms such as Amazon, Flipkart and Paytm Mall, up from 13-14 million last year.
Amazon India, which is locked in a fierce battle with Bangalore-based Flipkart (recently acquired by the world’s largest retailer, Walmart Inc), said that the upcoming festive season will be the biggest celebration yet on Amazon.in. “Apart from the best deals of the year on the biggest brands across categories, customers can look forward to more savings and convenience with programs such as Amazon Pay EMI, no-cost EMI & Exchange. We have invested aggressively in our fulfilment infrastructure to ensure customers continue to have the best shopping experience on Amazon,” said Manish Tiwary, vice president, categories, Amazon India.
Amazon currently has over 3.8 lakh sellers who will collectively offer over 170 million products this festive season, as against 2.7 lakh sellers offering 150 million products in 2017.
Flipkart did not respond to Fortune India’s queries.
According to the RedSeer report, Flipkart’s '2GUD' platform, which sells refurbished mobiles, laptops and electronic accessories, may witness increased traction this festive season. Also, its move to offer EMIs on debit cards as a payment option is promising. “This is expected to be a popular payment method considering total cards issued by banks is largely dominated by debit cards at 944 million, in comparison to credit cards at 39 million in 2017,” the RedSeer report said.
At Alibaba Group-backed online retailer Paytm Mall, festive sales will start from the first week of October and go on till end of the year. It will sell products ranging from apparels and accessories to FMCG goods to mobile phones, electronics, large appliances, and automobiles. “This year, we are hosting more sales, with an average of four to five major sales every month and expect shipments to surge as much as three times this festive season, compared to last year,” a Paytm Mall spokesperson said in an email.
Auto sector to woo customers with new launches
Auto sector players are also expecting a good festive sale with increased footfalls in the showrooms.
Mayank Pareek, president passenger vehicles business unit, Tata Motors says that the auto market is expected to see an increase in traction during the October-December 2018 period.
“We continue to see a pent-up demand for our new generation cars like Tiago, Tigor, Hexa and Nexon. We grew on a high base of August sales volumes, which is a testament to the overall acceptance and the generally favorable perception of our cars," said Pareek. Tata Motors will be launching special and limited editions of its model of cars in the hope of attracting customers this festirve season. “We will have four new launches. Out of which, we have already launched the Nexon KRAZ limited edition and the Tiago NRG, an urban tough-roader, entering into a new segment,” said Pareek.
On similar lines, Japanese auto major Nissan Motors too expects increased footfalls at its showrooms. “We recently launched a limited edition of Datsun redi-GO and the Nissan Sunny Special Edition…We also plan to launch the new Datsun GO and GO+, for which we are anticipating a positive response,” said Hardeep Singh Brar, director sales and commercial, Nissan Motor India Pvt. Ltd.
Retailers expect double-digit growth, bets on tier-II demand
Despite the e-commerce boom, retailers expect good sales this festive season with rise in demand from tier-II and rural India. Retailers like fashion and lifestyle retail chain Shoppers Stop and Kishore Biyani-led Future Retail Ltd expect a big festive season.
“Present trends indicate good footfalls and sales, compared to last year’s festive period. We expect sales to rise between high single digit to low double digit in percentage terms, with apparel being a top driver (of sales),” says Rajiv Suri, managing director and chief executive officer, Shoppers Stop Ltd. “While the rest of the market will be trying to offer discounts this festive season, we won't market discounts, but call ourselves the destination for newness and fashion.”
Shopper Stop’s new festive campaign ‘Wardrobe Refresh’ will focus on the newness of its offerings offer extra benefits to members of its customer loyalty program, First Citizen. The company says that 75% of its sales comes from First Citizen customers.
Future Retail, which celebrates the festive season from Onam in August till Christmas in December, also expect good sales growth this year, led by packaged food, followed by organic food, spices, staples and home care products. “We see our growth in three tracks - first is same portfolio growth, second is new markets and new categories like dry fruits. So we see a very healthy 40-50% growth (in sales),” said Ashni Biyani, managing director, Future Consumer Limited.
