Unusual June Weather Dampens Sales Of Biscuits To Beverages

Unusual weather in parts of India because of rains and a decline in consumer appetite to spend dampened retail sales in the month of June, according to the data shared by Bizom.

Sales of soaps to sodas fell 1.1% compared to the previous year, data from the retail intelligence firm that tracks 75 lakh mom-and-pop stores showed.

In comparison, sales in May rose 1.4%, whereas April witnessed a decline of 8.4% compared to the previous year, bringing down overall sales for the April-June period by 4.6%.

These mom-and-pop or kirana stores play a crucial role in India's everyday grocery supply. Typically, they maintain an inventory that lasts for approximately 30-45 days and restock every 8-10 days based on consumer demand. In April, these outlets bought lower quantities of goods due to their heavy stocking in March, lowering sales.

June presented a particularly challenging period for companies selling summer products due to the cooler and wetter weather conditions experienced during the first three weeks of the month in some parts of the country, according to Akshay D'souza, chief of growth and insights at Bizom.

While the onset of monsoon was delayed, parts of India received rains, lowering temperatures. Western India witnessed rainfall because of cyclone Biparjoy.

"There also seems to be a lower spending in purchase of discretionary products, which is evident in sales of both personal care and confectionery products," D'souza said.

Among the various categories affected, beverages took the hardest hit with sales falling 27% in June, followed by personal care products (-17.1%) and confectionery (-6.7%).

Krishnarao Buddha, senior category head at Parle Products Pvt., said the company's performance in the April-June quarter was "disheartening".

Although the biscuits and confectionery maker saw “marginal growth” in value due to price hikes, its volumes remained flat compared to the previous year. Buddha said, "Volume growth remained weak despite Parle offering benefits to consumers mainly by way of reversal in grammages."

Parle has not implemented direct price cuts so far as it faces 4-5% inflationary pressure over last year's base caused by the continued volatility in commodities such as wheat, sugar, and skimmed milk powder. However, Buddha expects a visible recovery in consumption during the upcoming festive quarter.

Kunal Vora, director and head of India equity research at BNP Paribas, said that price cuts might be necessary to lift volumes. He said, "prices of most stock-keeping units increased sharply over the last two years, but so far price cuts have been limited despite stabilisation in prices of key commodities. We believe price cuts might be needed to drive volumes."

The recovery of demand in the July-September quarter will largely depend on the monsoon season, according to Bizom's D'souza. "We're also seeing strong measures being put in place to keep a check on prices of edible oils through import duty cuts and ensuring adequate supply to tide over any potential El Nino crisis. This along with the upcoming festival season, and the lower trending food inflation are key enablers to drive consumption of consumer goods in the ongoing quarter."

However, there is a silver lining for consumer goods companies as most raw material costs have eased. The prices of various commodities, including brent crude, edible and palm oil, copra, barley, corrugated paper & paperboard, and vegetables, have decreased compared to the previous year. But there are a few exceptions such as wheat, milk, and tea, which have experienced price increases. Sequentially, the prices of key inputs such as palm oil, barley, mentha oil, and tea have shown a downward trend.

The prices of high-density polyethylene, which is widely used in the packaging materials for items such as shampoos, soaps, and oils, have also witnessed a decline. Additionally, linear alkyl benzene, a key ingredient in detergent manufacturing, has seen its prices drop.

These developments are expected to have a positive impact on the profit margins of companies in the fiscal year 2024, according to analysts at Kotak Institutional Equities.

Kotak further forecasts that the gross margin will witness an expansion of 251 basis points in the first quarter.