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

The Economic Times - - Brands: Creating Desire - Sa­gar.Malviya@ times­ AF­FECTED COM­PA­NIES

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

Com­pa­nies re­ported

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.

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