From cigarettes to liquor, sweets & eggs, ttems most hit by demonetisation

Topics Demonetisation

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When a pensive image of the prime minister of India, Narendra Damodardas Modi, suddenly beamed on all news channels across the country on the evening of November 8, it gathered millions of eyeballs. Millions others jostled in front of television sets as he went on to announce the government's decision to demonetise two key currency notes, Rs 500 and Rs 1,000. 

But little did the viewers know what implications would face them immediately. As days progressed, the impact of a liquidity crunch started to impair the third-largest economy of the world where a majority of the population is still dependent on cash for daily transactions. In a country where the unorganised sector employs over 80 per cent of the working population and forms 45 per cent of gross domestic product (GDP), demonetisation led to a near-halt in transactions, leading to the piling up of stocks of goods across the consumer market. This will lead to a cut in production for major manufacturers in the coming days if cash situation continues to remain grim, executives from top companies said. Let us have a look at the categories that are most hit due to demonetisation:

Cigarettes and tobacco items: Inventory of cigarettes and other tobacco products like chewing tobacco (Gutkha), mouth fresheners and pan masalas has started to grow enormously since November 10. As sales at retail stores and paan shops take place in cash, sellers witnessed a 75 to 95 per cent fall. Retailers and distributors across major cities, including Delhi-NCR, Mumbai, Ahmadabad, Hyderabad and Chennai, felt the heat. Distributors operating in rural areas are worst hit as consumers started to cut down discretionary spending soon after the announcement, leading to a huge stockpile and halt of transactions. While, sale of cigarettes at retail chains accepting credit and debit cards have increased by 100 to 400 per cent, they mainly remain confined to certain urbanised pockets. Sales representatives have virtually stopped visiting retail stores to supply cigarettes and other such products since companies could push only 20 percent of what they used to supply to their distributors since last Friday. Given the limited number of outlets with card swiping machines, it is unlikely that the surge in sales will offset the slump in total sales, he said.

Alcoholic beverages, soft drinks and packages juices: Unlike tobacco products, sale of alcoholic and other beverages has seen a mixed response from the market. Sales have plummeted in rural and semi-urban markets, registering a fall between 90 to 70 percent. In urban markets, especially in metro cities where the number of outlets dealing in cashless transactions is more, sales went down by 50 per cent. The inventory situation, however, continues to haunt distributors and large dealers as they look forward to clear 65 per cent of their stocks by volume, leading to lowering of purchase from the manufacturers.

Personal care, hair care and other FMCG products: Again, inventory in rural supply chain has started to put pressure in traders. Metros are less hit due to a section of consumers opting for cashless transactions at modern retail outlet chains. Rural distributors, kept accepting old denominations for a few days to keep the ball rolling. However, as cash remains out of reach for most stakeholders, they fear that business may stop soon. Meanwhile, inventory of smaller packs, which are mostly purchased by the economically weaker sections, have increased by over 50 per cent across markets. Shampoos, soaps, hair oil, mustard oil, and packaged food like chips, biscuits, instant noodles, pasta, chocolates and confectioneries, among others have been hit badly as consumers tend to save Rs 100 and smaller denominations. Small retailers at urban centres also saw their stocks piling up by 40 per cent.

Chicken, Meat and Eggs: Falling under the semi-luxury item category sale of meat, currency demonetisation have taken a toll on sale of chicken and eggs. Traders in rural markets have witnessed over 60 per cent fall in sale of meat and chicken and over 50 per cent for eggs, leading to an increase in inventory at the farmer level. Dealers in cities such as Kolkata, Hyderabad, Chandigarh, Delhi and Bangalore are not relieved either. According to a major meat supplier in Kolkata and South Bengal region, a part of the country known for its predominant non-vegetarian population, his inventory has grown by over 35 per cent in the past few days compared to supply crunch during the festive seasons in previous years. Inventory for eggs in major cities have increased at the range of 20 to 45 per cent.

Not a very sweet affair: Sweets are items for which production can be adjusted overnight, no such inventory issue has surfaced due to demonetisation. But sales across the country have been severely hit, leading to cut in production in the past few days. Sale for famous sweet makers in Kolkata have gone down by almost 70 per cent during the last five days as most of them cannot process transactions using debit and credit cards. In Delhi, a majority of the shop owners complained about sales going down by over 50 per cent. However, larger operators like Haldiram's and other outlets in metro stations with card swiping machines or online payment options are less affected. Ice cream sales have been impacted too. Due to the very nature of the product, brands are weary of their existing stocks and some have already initiated a production cut.

Small eateries: Being the worst hit sector as consumers with Rs 100 notes are keeping their purse tight for unnecessary expenses. Most in Delhi said, they have nearly run out of business and had to incur losses during the first two days. Since then they have cut down their daily operations.

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