Distributors Face Inventory Pile-Up As Sales Of Consumer Goods Fail To Recover

Slowing demand from retailers has increased inventory days, distributors from five states told BloombergQuint requesting anonymity fearing business repercussions. They now carry stock for 20-40 days compared with 15 days four months ago and about 10-12 days a year earlier.

Companies have been dumping goods, said a distributor in Goa, but they receive payment from retailers only when the stock is finally sold to consumers. That, according to the distributor, has forced them to extend credit period.

Consumption has been slowing in India since the last festival season as consumers are buying fewer cars and scooters to shampoos and biscuits. It reflected in the GDP growth as the economy expanded at the slowest pace in 20 quarters in the quarter ended March. Sales of essential items and impulse food categories started slowing at the beginning of the year, which trickled down to various segments by June.

Revenue and volume growth of India’s largest FMCG firms slowed in the three months ended June, according to data compiled by BloombergQuint, with only Dabur India Ltd. and Nestle India Ltd. bucking the trend.

The companies don’t foresee an immediate uptick. “We will see a slowdown for two or three quarters and the market will start to come back slowly,” Varun Berry, managing director and whole-time director of Britannia Industries Ltd., told analysts after announcing earnings for the quarter ended June. “…it will probably be three quarters or four quarters before we start to see business coming back to levels that we were at before that.”

Nielsen India cut its forecast for the consumer goods industry this year to 9-10 percent and pegged growth in the ongoing quarter at 7-8 percent.

“There’s an economic slowdown and there could be a little bit of liquidity crisis also because trade members are asking for high liquidity, especially in rural areas,” Mohit Malhotra, chief executive officer of Dabur India, told analysts after announcing earnings for the quarter ended June.

BloombergQuint has emailed queries to Hindustan Unilever Ltd., Britannia Industries, Marico Ltd., Emami Ltd. and Dabur India seeking their response on the increase in average inventory period among distributors. This story will be updated once they respond.

Nielsen also said the slowdown in rural India—where consumption is traditionally higher—is nearly twice that in urban markets. Both the segments, according to the market researcher, are currently growing at the same rate, with Haryana, Madhya Pradesh, Uttar Pradesh, Maharashtra and Assam leading the slowdown.