2009 round-up: FMCG and Retail, a Study in Contrast
2009 has proved to be a turning point for the retail industry. Mindless expansion brought trouble knocking on their doors. But the FMCG space has a different story — one where they managed strong growth despite a recessionary environment. CNBC-TV18’s Tanvi Shukla and Priyal Guliani get the roundup for the consumer sector.
“I think 2009 came in and gave a slap on our face,” says Kishore Biyani, Chairman, Future Group. And why not? 2009 began on a disastrous note for the retail industry, with one of the biggest value chains — Subhiksha — going bust in January. Complete mayhem followed. Several players had to resort to shutting down a myriad of stores and lay off employees en masse. All because a recessionary environment played spoilsport and kept consumers away. The bursting of the real estate bubble added to the trouble with not even 10% of the malls promised being delivered. And with retailers cutting back on expansion plans, even these found few takers.
“We all got carried away in 2008 and when you get carried away, you tend to start making mistakes, you tend to start assuming that the consumer is there and India is going to grow,” Biyani says. “We have to understand the consumer, the consumer will have to understand us, the categories have to be understood deeply. You can’t go in for blind growth, costs have to be considered.”
Experts had expected a consolidation in 2010 — but this was forced on them a year earlier. Vishal Retail applied for its corporate debt to be restructured and international brands like Etam exited the Indian market. Retailers Spencers and Aditya Birla Retail decided to go the hypermarket way, and shut down loss-making stores. Reliance Retail carried out a restructuring process to reposition itself.
Sanity has now returned. 2009 is closing on an upbeat note with most categories registering double-digit growth and store launches coming back in fashion. Listed players like Pantaloon and Shoppers Stop have got their funding in place and others are in active talks with several private equity players. Some like Dominoes and Cantabil are getting ready for initial public offerings.
But even as retailers struggled to come to grips with the slowdown, the FMCG sector maintained a sunny disposition. Thanks to strong rural demand, most domestic firms grew at more than 25-30% over the year. And ad spends touched peaks in the last two quarters of 2009. This strong growth came despite the price hikes implemented in 2008 taking a chunk out of volumes for giants like HUL. However, experts say that rising food prices will mean higher raw material costs, and so advise caution.
“We've to wait and watch what’s going to happen in the next few months especially those companies dependent on food whether it’s milk or sugar. They would experience some pressure on bottom-line,” said Harsh Mariwala, Chairman of Marico.
There is another reason to exercise caution, say experts. A bad monsoon in 2010, and falling consumer spending could hit FMCG volumes in the coming quarters. And while soap and biscuit makers close 2009 with a smile, 2010 could well give the cause to mutter and frown.
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