Note Ban Has Had a Global Impact, on MNC Top Lines The likes of Coca-Cola, GSK and Colgate-Palmolive blame demonetisation for sales dip
Mumbai: India’s rising profile at CocaCola, Unilever, or Colgate caused an outcome as pronounced as the overnight currency controls announced November 8: A decline in sales that may take time to rebound before the intended benefits of the federal move become visible to the global consumer-goods giants operating in the world’s fast-expanding major economy.
The $2.2-trillion economy, Asia’s thirdbiggest and expanding at a rate faster than China, took centre-stage as chief executives of a dozen global consumer companies faced investors and analysts after quarterly earnings. While saying the government’s drive toward a less-cash economy would help organised-sector in the long term, leaders at companies as diverse as Diageo and GSK attributed the decline in sales to the temporary loss of purchasing power in a country where 86% of the cash in circulation ceased to be legal tender.
“The demonetisation issue certainly affected us very significantly toward the end of the year. We would expect that to probably take a couple more months to play through. We think in the long run, it’s a positive for India. But it’s definitely disruptive in the short run. And no question, we’ve seen that effect,” Andrew Witty, CEO at GlaxoSmithKline, told investors and analysts. “A lot of our Horlicks business is distributed and consumed at a very low level of the income pyramid, who essentially don’t have bank accounts or credit cards, and they don’t historically deal in big high-value rupee notes.”
After revival in sales during October, demand for consumer goods fell by a third in the next two months. The transitory loss in purchasing power caused consumer companies to report between 1% and 9% decline in the December quarter sales in India, where about 98% of consumer transactions were made using cash before currencies were swapped. According to Nielsen, the ₹ 2.5-lakh-crore market for fast-moving consumer goods could take a hit of about 1.5% of net sales,
Demand for products fell by a third in November & December post note ban
Rural market was worst hit due to their large dependence on cash
decline in December quarter sales
Firms still facing issues with stocks in the pipeline
Most companies upbeat on a recovery by next fiscal which works out to ₹ 3,840 crore.
“Demonetisation effectively drained liquidity. I don’t think that's about price elasticity, I think that’s about the current shock to the circulation and liquidity,” Coca-Cola CEO-designate James Quincey told analysts. The company’s Indian business responded quickly by facilitating digital payments, extending credit to mitigate de-stocking, and increasing emphasis on the modern trade, he said.
The liquidity crunch came at a time when some companies were looking to enhance their brand salience through enhanced promotions and exciting offers. “In India, demonetisation cost us a swing from strong growth through Q3 to a decline in Q4,” Colgate-Palmolive global CEO Ian Cook said in an investors’ call.
The worst hit was rural India, where trade is cash-heavy and transactions are made at neighbourhood grocery stores that lack the infrastructure to support digital payments. “In fact, Nielsen estimates that the rural market over October, November and December was down by about 60%, which was a surprisingly high number for us,” Unilever global CEO Paul Polman told analysts during the company’s recent quarterly call with investors.
India’s liquor industry, too, could not escape the cash crunch. For instance, French spirits firm Pernod Ricard that had been growing in double digits for the past decades saw sales tapering off to just 3% last quarter. The maker of Absolut vodka and Chivas Regal Scotch said demonetisation hurt consumption anywhere between 10% and 20%. “It really hit the bottom end where basically people didn’t have bank accounts, weren’t ready to adapt to this measure. As you know economists are even struggling to see how this affected the global economy, but everybody is in line to say this is basically temporary,” Chief Executive Alexandre Ricard said.