Real Economy Check: Purchasing Pattern Shift Is Hurting Small Manufacturers, Says Dhaval Shah Of Apex Consumer Appliances

So basically, we are a hardcore manufacturing company. We are into manufacturing of multiple small appliances like gas stoves, pressure cookers, induction, gas geysers so I would repeat, we are hardcore manufacturers. We take basic components and turn them into complete appliances. We also sell it as our brand and we also do contract manufacturing.

Yes, if what you’re trying to ask me about recession, yes, whomever we speak to, is talking about recession. But, in my opinion, in our kind of products which are basic products like gas stoves and pressure cookers and mixer grinders, I don’t think people would delay their purchase just because there is a recession. I think this (product) has become a necessity product but yet, there is no business. Now, I am talking about two things which are completely opposite. So, what is happening is, because of new entrants in the market, like Flipkart, Amazon and let’s say the modern retail stores like Reliance and DMart, the business is shifting from the mom-and-pop stores to these places. Because of this, the pinch is very hard. There are lakhs of mom-and-pop stores all across India and now, these people are seeing the demand shift from their stores to these kinds of new entrants. So, yes, they are feeling the recession, but it is not because people are delaying their purchases, but it is because there is a shift in the purchasing pattern.

No, it has come down. So, what has happened is, when the new players came in, for example, I’d be very specific with an example, they have a policy of ‘no questions asked return policy’. In this policy, the loss was completely of the manufacturer. Because, if the consumer was not happy, they would return it and it would come down to us in a damaged condition. So, the players who were established, they thought that, okay, this is not worth it. So, they decided that we will not entertain such requests. So, the margins which we were able to get from an open market, a mom and pop store was much higher compared to what we used to get from modular players or the online industry. So, the established players thought that, we will wait it out and they did not entertain the demand from this sector, and they did not bend over backwards for these companies. So, the online industries started developing their own vendors, actually who did not have business, or they were new players and they were ready to work at whatever conditions. They were not ready to look at the profitability and because they were desperate for business. So now, two-three years down the line, these are the new players that are supplying to Amazon and we are not doing anything and when we want to, there is comparatively lesser space available to us. So yes, our production, the numbers that we were doing, has gone down because there is a shift in demand and today if we try to go and do business over there, they say they already have fixed vendors.

What you rightly said, one of the bigger factors that is affecting us today is the liquidity crunch. Before demonetisation, there was cash available from multiple sources, there was funding available from multiple sources so I could go to a bank which is a standard firm, I could go to a normal friend of mine and say that okay, I am in a crunch. People would have some money stashed with them and that would allow us to overcome any difficulties that we would be facing in that particular month or in that particular week in business and the cycle was smooth. Now, post demonetisation, whatever cash, whatever liquidity that people had with them has either been invested in gold or in real estate or in any other business that they thought was fit. So suddenly, if I call up my friend and say that I am in a crunch, there is practically no money available. Because there is no extra cash lying around whatsoever. Second, in the last two years, what has happened with the Indian economy is that, every two months or so, there is a new scam coming into picture and banks have become extra rigid. Again, I’ll try to give you a small example, let’s say there is a compliance where I am supposed to send in my report or my balance sheet or my stock statement every month and if I delay it this month because I am busy with multiple things and earlier, instead of sending it per month, I would send it every months; the banks were okay. Now because of rigid controls, because they have been pressurised that you have to follow the norms. Now, if I don’t send it in a month, they will start taking actions. So taking this further, if I go to a bank and say, now, I am in a liquidity crunch and kindly allow me an extra Rs 1 crore or Rs 50 lakh, there would be ten thousand questions that would be asked, the decision-making is slow and most of the times, the answer is no. So, there is a real problem. The first is the speed. Previously, the speed was much faster and secondly the answer. Previously, the answer was mostly yes, today the answer is mostly no. So today, there are multiple opportunities coming day-in and day-out in business and we are supposed to supply an ‘X’ amount of goods to a company which is just a short-term business. It is not a long-term business. And at that point of time, we need short-term credit which we don’t get. So, sometimes we feel it is not worth the pressure and we would rather let the business go, because without money nothing can actually happen.

The straightforward answer is no. Our major market—80-90 percent of our market—is the mom and pop stores. Traditionally, they have never gone to a bank to get funding. They operated purely through a credit system that we used to give them, a two-months credit or three-months credit that they used to sell off their goods and pay back to us. So, they never went to a bank. Now, what has happened is, let us say, a retailer, he has a calculation system in his mind that every month I will be selling let us say, 100 pressure cookers, 100 gas stoves and 50 mixer grinders. So, he would order the same from a distributor and two-months down the line, he is supposed to pay back. Now everybody in the industry knows that when they say it is going to be two months it is going to be three months. However, what is happening now is that though he had ordered keeping in mind a demand for these products because that is how it has primarily been for the past 10 years. Now by the end of the two months or three months, he has been able to sell just 50-60 percent of the stock. Because of this, he only pays 50-60 percent of the given amount. The cyclical effect of this is, the distributor is now very rigid in supplying new goods to him, he says, till you pay the old amount, the new goods will not come in. and because of this, he doesn’t have a variety to supply to the end-consumers. So the consumer who walks into the store, doesn’t see a variety and again, he goes to Amazon and Flipkart? This is a bit of a vicious cycle.

Actually, this is a very difficult question, I seriously wish I had an answer to this. See, how does Amazon or Flipkart or a modern retail store sells in India? I mean they say we are cheaper, and we are cheaper, and we are cheaper. That is the only marketing strategy they use. For a retailer, a mom and pop store retailer, to match this pricing is easy. Today, a manufacturer is ready to cut down their margin, a distributor is ready to cut down their margin so matching their price is not the issue. The issue is, today, a consumer wants to go to a nice-looking store which is well-stocked and well-designed. They want things to be easier and to be sophisticated so it is time for the retailer to upgrade their store, to be at par as far as these modern stores are concerned. For them to renovate, they need funds and again, the funding is not available. I think, this is one of the ways they can come back into the fight and really stand a chance. Having said that, I seriously have no idea what can be done about the economy, in the economy to again get back to the old self.