After staples, discretionary categories feel the pinch of slowdown

Riyaaz Amlani, chief executive officer (CEO) and managing director (MD), Impresario Entertainment & Hospitality, is a worried man. Business at his restaurants has slowed, he says, and growth has been flat in April. “This is the holiday season. Business should have been brisk. But we’re not seeing much action for the last one month,” he says.

Amlani isn’t the only CEO in the discretionary space to be echoing these views. Veterans such as Dilip Piramal, chairman, VIP Industries, are also on the same page. He says, “There is some disruption in the market due to the elections. People are not travelling enough and the marriage season, too, has been pushed into the second half of the year. There is a lull.” 

Across the board, segments such as retail, auto, and lifestyle are following their peers in staples, reporting a demand slowdown and impact on business. In travel and tourism, holiday packages are getting smaller as consumers downtrade.

VIP Industries, for instance, saw sales growth for the three months ended March 2019 (Q4) slow to nearly 20 per cent, from 30 per cent a year ago. The company’s net profit declined nearly 28 per cent in Q4 as the product mix deteriorated towards lower priced bags. The firm also admitted that competition in the entry-level segment was growing as consumers downtraded and players undercut each other for a share of wallet.

The downtrading trend is visible in the domestic motorcycle market too, where sales of cheaper brands have outpaced pricier ones. For instance, sales of entry-level bikes (75cc to 110cc) touched 8.4 million units in 2018-19 (FY19), from 7.4 million units a year ago, while those of premium bikes (200cc to 250cc) skidded to 139,000 units, from 180,000 units in the same period. Even sales of bikes with an engine capacity between 250cc and 350cc, dominated by players such as Royal Enfield, remained muted, going down from 773,000 to 768,000 in the year under review, according to industry body Siam.

Passenger vehicle makers, on the other hand, haven’t seen a shift in buying behaviour, but a clear postponement of purchases. “Sentiment is so poor that people are putting off their buying,” said a dealer at Maruti Suzuki India, the country’s largest carmaker. 

Passenger vehicle sales in India have been in the slow lane. They grew by 2.7 per cent in FY19, the slowest in five years.

G Chokkalingam, founder and MD, Equinomics Research & Advisory, points to a broad-basing of consumer slowdown as most recalibrate expenditure. “Purchase confidence has reduced and sentiment is low, resulting in a pullback in terms of spends across categories,” he says.

India’s industrial output declined by 0.1 per cent in March, hitting a 21-month low, due to contraction in manufacturing, capital goods and consumer durables, the data released by the Central Statistics Office on Friday showed. Manufacturing, which constitutes 77.63 per cent of the Index of Industrial Production, shrank 0.4 per cent in the month and the picture remains gloomy in the near term, prompting rating agencies to cut India’s gross domestic product (GDP) growth rate for 2019-20 (FY20).

Last week, India Ratings and Research lowered its GDP growth projection for FY20 to 7.3 per cent, from 7.5 per cent, saying a loss of momentum in industrial output, continued agrarian distress, and low consumer sentiment were the reasons for the downward revision.

In travel and tourism, CEOs say the ticket size of packages has reduced, with cheaper options clicking with consumers. “We are seeing a lot of holidaygoers pick cheaper international travel destinations and short-haul flights this year,” says Rajesh Magow, co-founder and CEO-India, MakeMyTrip.

He says there is a rising trend of people preferring east-bound travel to places such as Singapore, Thailand, Bhutan, and the Maldives, led in part by cheaper budgets as west-bound travel becomes expensive. Even domestic destinations are hot this year such as Uttarakhand, South India, the Andaman Islands, and Himachal Pradesh, he says.

But not all CEOs believe that consumers will either postpone or opt for cheaper products for long. Siddhartha Lal, MD and CEO, Eicher Motors, which makes Royal Enfield motorcycles, says premiumisation as a trend is here to stay. “In the long run, it is not about downtrading, but upgrading,” he says.

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