Mumbai, Jan 19 (IANS) An interesting dichotomy in consumer spending space has emerged for this year as a result of demonetisation where a shift from unorganised to organised trade will be confronted by a weak macro-environment, says a top investment banker.
This apart, consumer goods companies are also going to opt for calibrated price hikes, cut advertising spends and defer new product launches till clarity emerges in the market, says Jefferies.
"We believe the new normal growth rates would be lower than that seen in the past," a report by Jefferies on consumer sector said.
"2017 presents an interesting dichotomy -- while the shift from unorganised to organised trade is an imperative post demonetisation, this would come on the back of a weak macro environment, where the pace of premiumisation will be slowing down."
The report said post demonetisation, staples like soaps and detergents would see little impact because of need-based demand. However, demand for discretionary goods like liquor and jewellery would take a structural hit as a ripple effect of the cash crunch.
Drawing a parallel with the Chinese liquor demand post anti-extravagance campaigns (started end-2012), the report argued that the demand impact in the spirits market is more structural than transitionary.
"Continued pressure on sales in Chinese liquor market forced companies to re-calibrate the business model to a 'new normal' and we would expect a similar trend in India."
It said modern trade contributes 8 per cent of the fast moving consumer goods sales while the rest of the sale is realised through the traditional distributor-wholesale-retail model.
"All companies are indicating rejuvenated focus on increasing direct distribution to mitigate the salience on wholesale channel. Stress in the wholesale channel would lead a shift to modern trade and e-commerce channel, which enjoys higher profitability than the traditional general trade channel," the report stated.
It said consumer promotions are withdrawn and inflation in input costs implies that the growth would be more pricing-led going forward. "In a weak macro environment, we argue that the demand curve is going to remain weak in the medium term."
"Acceleration in low end consumption implies mix deterioration, resulting in gross margins pressure across the sector," it added.
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Doraiah Chowdary Vundavally is a Software engineer at VTech . He is the news editor of SocialNews.XYZ and Freelance writer-contributes Telugu and English Columns on Films, Politics, and Gossips. He is the primary contributor for South Cinema Section of SocialNews.XYZ. His mission is to help to develop SocialNews.XYZ into a News website that has no bias or judgement towards any.