HealthMin’s move on tobacco sale gets mixed reactions
Following the Union health ministry’s advice to states to restrain small shops from selling eatables if they also sell tobacco products, shopkeepers are expected to continue choosing to stock the latter over the former, due to higher margins. This could lead to a realignment of the entire supply chain in fast moving consumer goods (FMCG) routed through roadside shops.
Sector officials say such shops are a fourth of the 10 million retail outlets in the country. “The margins (profit) from cigarettes and other tobacco products are much higher than other FMCG products. I think these retailers will stick to the tobacco trade. In turn, it’ll lead to the entire foods portfolio shifting towards grocery and organised retailing,” Mayank Shah, category head at Parle Products, told Business Standard.
The estimate is that once the proposed change in law is enforced, 15-20 per cent of the annual industry in biscuits and 20-25 per cent in confectionery will shift to grocery and organised retail. The nontobacco FMCG portfolio in these small shops accounts for 10-15 per cent of sales; their primary sale is driven by cigarettes, paan masala and chewing tobacco.
An FMCG industry official says all these changes will take a year to implement, within which timeframe the sales will be disrupted to an extent. “But, it will create a barrier (between tobacco and non-tobacco FMCG products), which is good. Since it is a health ministry directive, it will definitely be implemented in due course,” the official said.
These tobacco and betel shops contribute seven to 10 per cent of total FMCG turnover in the country and account for 65-75 per cent of cigarette sale volume.
Still, can the ministerial directive to states for devising methods to track and limit tobacco sales serve the purpose?
Abneesh Roy, research analyst with Edelweiss Securities, feels cigarette sales will be immune from such directives. Betel shops use ‘ zarda’, a tobacco product, as an ingredient in paan and so will continue to sell tobacco products.
“I am not sure if a consumer goes to a betel shop to buy a pack of biscuits and ends up buying cigarettes as impulsive buying. In many cases, I think it is the other way round,” said an official from the cigarette industry.
In fact, it is widely believed that for a smoker, tea and a cigarette offer the right combination, not cola and a cigarette or a biscuit and a cigarette.
However, the ministry has argued that the move would limit the exposure of tobacco products to minors, preventing the smoking habit from developing.
The industry and analysts are sceptical. Amritanshu Khaitan, managing director at Eveready Industries, notes there are 2.5 million tobacco and betel outlets in the country. Monitoring to implement a segregation of tobacco and non-tobacco sales is difficult.
“In the past, we have seen several orders being passed like the ban on guthkha, prevention of smoking in public places and others. It needs to be seen how effectively this can be implemented,” says an analyst with HDFC Securities.
Even so, as non-tobacco FMCG companies prepare for a channel overhaul, small tobacco sellers who also vend other items are likely to protest.