The Goods and Services Tax (GST) was implemented on July 1, 2017, with the bold intent of turning India into one common market that offers the benefit of greater ease of doing business and savings in logistics costs for companies across all sectors. The larger expectation is that the tax reform will result in a huge shift from the unorganised sector to organised sector, thereby providing a boost to the Indian economy in the long run.
In the run up to GST, Nielsen had anticipated lower stock levels in the pipeline, some availability issues immediately afterwards, and lower retail prices for certain categories. This edition focuses on how stock levels and consumer prices have actually panned out in comparison to expectations, as well as the extent to which, retailers have understood, adapted and created opportunities around this new tax regime.
The rate of inflation has been in low single digits in recent months. The food and beverage price index, which accounts for nearly half the consumer price index basket, shrunk 1.17% in June, and items of daily consumption witnessed either nominal or no increase in prices. Even though, very recently, between July and August 2017, inflation has inched up to 2-4%, broadly, all indicators are favourable for the FMCG sector.
1.RETAILERS DEMONSTRATE ADMIRABLE AGILITY
With the business environment in a state of flux, retailers are also adapting fast. A third round of the survey that Nielsen conducted among 35,000+ retailers indicates that:
(a) Awareness of GST among retailers is near complete as of now.
(b) The perception that GST would positively impact their business is gradually improving, though a large proportion is still not convinced.
2.THERE IS A BETTER UNDERSTANDING OF STOCK LEVELS AMONGST RETAILERS
Nielsen Retail Measurement Service (RMS) witnessed buoyant consumer demand during both the periods of trade disruption – demonetisation and GST. However, there was a big impact on manufacturers’ shipment level and stock levels of FMCG retailers, both of whom chose to be cautious.
Retail stock levels saw a dip post demonetisation and continued to remain low through the first quarter of 2017. Ahead of GST, the levels dipped further resulting in a slight increase in out-of-stock situations. The July to August quarter has seen a reversal in stocking trends for a majority of the categories, though it has still not reached the 2016 levels.
3.IMPACT ON PRICES IN MARKET
Daily-use products like soaps and detergent bars were expected to get cheaper post GST as the new tax rate on these products has gone down. Moreover, some manufacturers have announced Price offs for those categories. In reality, two months into the implementation of GST, there isn’t any clear indication of a price drop.
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