After 2-yr pandemic thrift, 'revenge spending' likely this festival season

Consumer companies across retail, fast-moving consumer goods (FMCG), and consumer durables expect demand revival this festival season after two years of weak sales.

With semiconductor shortage having eased, passenger vehicle sales are also expected to pick up, helping automotive (auto) makers increase output.

The FMCG sector continues to be burdened with weak volumes as inflation pushes up the prices of goods, afflicting consumption.

The apparel sector in the urban markets has witnessed a sales uptick from April. The positive sentiment is expected to sail through the festival months.

However, rural demand for apparel continues to lag behind as buyers prioritise their household budgets by spending more on food.

“With revival in rural demand and Covid cases not as alarming, given vaccination rates are up, the festival season is expected to see higher sales, compared to 2019,” says Mayank Shah, category head, Parle Products. The pandemic has invoked people to rethink their eating habits.

Thus, the demand for packaged food is expected to increase further, he says.

The festival season kicks off with Onam end-August right through Diwali in October.

Notwithstanding a volume hit, South India-based FMCG major CavinKare expects sales to perk up. “We expect 10 per cent growth in volume, compared to pre-Covid levels, as we expect consumption to pick up by then,” says Ventakesh Vijayaraghan, group chief executive officer (CEO), CavinKare. The company will also increase its presence in e-commerce and have dedicated festival packs for the celebratory season ahead.  

In the October-December quarter of 2021-22, FMCG sales were up 19.6 per cent in value terms, according to Bizom – a retail intelligence platform. “Value sales were higher in the quarter due to price hikes already initiated by companies to beat rising raw material costs, coupled with festival demand,” says Akshay D’Souza, chief of growth and insight at Bizom.  

NielsenIQ’s data points out that while there was price-led growth in the quarter ended December last year, volumes were at minus 2.6 per cent.
 

Apparel and fashion chain Lifestyle has already begun to see revival in sales since April and the trend persists through this sales season. It expects double-digit like-for-like retail sales growth this season, in contrast to 2019.

“While there has been a price hike of 12-13 per cent that came into effect in April, we will not take further price hikes and expect volumes to pick up in single digits, as opposed to pre-Covid levels,” says Devarajan Iyer, CEO, Lifestyle.

He says the chain has placed higher orders than what it did before the pandemic breakout.

However, V-Mart Retail, which has stores in smaller cities and towns, is currently seeing volume decline. The retailer though is in wait-and-watch mode.

Lalit Agarwal, chairman and managing director (MD), V-Mart Retail, says, “Consumers in smaller towns have seen 60-65 per cent of their total income diverted to food, which stood at 50-52 per cent in pre-Covid times.”

Consumer durables manufacturers are still reeling from supply-chain constraints and weak demand. However, they expect demand to improve this season, compared to last year’s. During the quarter, consumer durables manufacturers have reduced production by 5-10 per cent after the summer season, given that demand had plateaued.

“We are optimistic that this year’s sales will be better than last year’s, but volumes will continue to remain in the negative,” says Kamal Nandi, business head and executive vice-president, Godrej Appliances.

He says while demand will emerge for premium products, the mass segment will remain affected. The mass segment typically shops for consumer appliances between February and May. Value growth is expected to be between 8 per cent and 10 per cent on the back of demand for premium products.

In the first festival season after the coronavirus outbreak, consumer appliance sales were down 40 per cent. They were down 30 per cent in 2021, compared to the pre-pandemic period, says Nandi.

During Covid years, consumer appliance companies increased prices by 17-18 per cent to pass on the price increase to consumers.

“After a period of lull, sales pick up during the festival months,” says Avneet Singh Marwah, CEO, Super Plastronics, the brand licensee of Kodak, Thomson, Blaupunkt, and Westinghouse in India.

He says supply-chain and logistics are not back on track for the sector yet, but expects double-digit volume growth to be in the late teens.

Marwah says he will remain price-competitive if Chinese manufacturers get aggressive on pricing.

Passenger vehicle retailers are also looking to make the most of the season as improved availability of semiconductors has helped automakers increase output and cut back on the waiting period. A clutch of new model launches in the sport utility vehicle segment is expected to buoy sentiment further. However, the pain for those in the scooter and motorcycle business endures.

“We expect the festival season this year to be better than last year’s for passenger vehicle makers as the semiconductor shortage has moderated to some extent. Two-wheelers continue to struggle,” says Vinkesh Gulati, president, Federation of Automobile Dealers Associations. He expects increased supply, especially in the passenger vehicle segment, to decrease the waiting period for cars.

Last year, the automobile industry witnessed the worst festival season. While passenger vehicle sales suffered due to chip shortage, rising fuel prices and increase in the overall cost of ownership put the brakes on two-wheelers. During the 42-day festival period (Navratri to Diwali), total vehicle retail plunged 18 per cent year-on-year (YoY).

There is little respite for two-wheeler makers who continue to feel the squeeze, says Nikunj Sanghi, MD at Alwar-based JS Four Wheels - a Hero MotoCorp and Mahindra & Mahindra dealer.

He expects the 42-day period to be either flat or negative YoY for two-wheeler sales. It’s likely to be substantially lower than 2018-19, which was a pre-pandemic normal year.

“The segment continues to brook inflationary trends, food inflation in particular,” says Sanghi, adding, “The benefit of monsoon and a bumper harvest haven’t had much of a positive impact.”