Tuesday, May 23, 2017

Consumer News| GST: FMCG firms offering huge discounts

Industry Specific News

1)      GST: FMCG firms offering huge discounts, but cautious retailers reducing stocks

·         Cos offering increased margins for Colgate for retailers and distributors: Fast-moving consumer goods (FMCG) companies such as Hindustan Unilever, Procter & Gamble and Colgate-Palmolive that had altered manufacturing and pricing strategies in anticipation of the goods and services tax are now reaching out to wholesalers and retailers and offering them product and cash discounts. With GST set to be rolled out on July 1, companies want to make sure that any initial uncertainty over the levy doesn't mean shops temporarily halt stocking consumer wares as they get accustomed to the new regime. These firms are also keen to dispose of as much inventory as possible in May and June so that they are not saddled with unsold inventory on July 1. "We cannot manage and evaluate inventory across millions of outlets in the pre-GST and post-GST scenario. It will be too complex since rates are different across different products," Dabur chief executive Sunil Duggal said. Dabur makes Real juices and Vatika shampoo. "We are considering stepping up retailer margins," said Dabur's Duggal. While Colgate is said to have promised to double margins to retailers and wholesalers for May and June, Santoor maker Wipro has promised its distributors compensation for excess stock and difference in tax, said people aware of the matter. India's biggest consumer goods company said clarifications are required to make for a glitch-free shift to the new regime. Companies such as Colgate and P&G are luring us to buy more by giving 2-4 per cent margin incentive, but I don't want to carry a burden on my shoulders," said Vasudev Chutwani, owner of Rajasthan-based Shankar Shree Enterprises, who has reduced his stock by 20 per cent across products of companies such as Dabur, Marico and HUL, and is planning to further bring it down to half in June, especially after June 15. "Even small shopkeepers are reducing purchases by 25 per cent ." For wholesaler JT Brothers, the story is the same. "Almost every company such as Dabur and HUL is giving 3-7 per cent additional schemes, but we are not interested," said owner Kapil Advani, who has reduced stock by 50 per cent and will cut it by 75 per cent in June. Also, business is down by 50 per cent, he added, attributing this to overall slowdown.
·         Cos looking for slashing production by 25-30% where product are in lower tax bracketInsiders said many companies are also looking to slash production by 25-30 per cent in cases where the products are now in a lower tax bracket. Experts point out that there is also a fear that reducing manufacturing and adopting down-stocking supply chain strategies may affect market share. Stocks are also being reduced due to complications regarding the rise in some costs, said experts. Many retailers and wholesalers are also demanding that FMCG companies underwrite losses they may incur when the new tax regime takes effect.  "Excise duty is embedded in the MRP in the products manufactured before July 1, and if this product is sold after this date, there would be a duty cost and probably a loss for the seller," Uday Pimprikar, partner, tax and regulatory services, EY India. "Someone will have to underwrite this cost for the retailer, and it could be the manufacturer in most cases. To avoid this, companies will inter alia seek to reduce transition stocks in the supply chain — this could be done by pushing sales of products manufactured till June 30 before GST comes in. Further supplies to the supply chain will also be required to be regulated."
·         Many cos has increased product prices in anticipation of GST: The big FMCG companies had increased product prices in anticipation of GST. In the past three months, HUL removed discounted offers as high as 15 per cent from detergents, soaps and shampoos, while Godrej Consumer raised the prices of Godrej No. 1 and Cinthol soaps by 11-13 per cent year-on-year. Colgate, which usually raises prices by 5-7 per cent every year, increased them by 10-18 per cent over last year.

Company Specific News

1)      Increasing GST rate on ayurvedic products is disappointing and disheartening: Patanjali

·         Patanjali unhappy with the tax slab proposed for its products under distributor:Patanjali Ayurveda, the wellness grocer that has upended India’s well-settled consumer goods leader board, is unhappy with the tax slab proposed for its products under the Goods and Services Tax (GST) plan, the introduction of which would more than double the levy to 12%.  "We request the government for a review of the GST rate for the ayurvedic category in the interest of the common man. Without good health or good living, there cannot be ‘achhe din’ (better days),” Patanjali Ayurved spokesperson SK Tijarawala said. Ayurveda products using natural ingredients previously attracted levies of about 5%"Increasing the GST rate on ayurvedic products is disappointing and disheartening. We are the ones who have made ayurveda reach consumers at affordable prices, and other companies have followed our lead,” said the spokesperson, articulating the views of Baba Ramdev. Other companies directly affected by the increase in GST rates include Dabur and Emami. Dabur India CFO Lalit Malik had said on Friday that the company was ‘disappointed’ with the government’s decision to levy 12% GST on ayurvedic products.  "We believe this will have an adverse effect on the category and that too at a time the government has been talking about promoting traditional Indian alternative medicine,” Malik had said.
·         Patanjali Ayurveda has said it will factor in input credit adjustments before taking a call on retailing rates: On the impact on consumer prices after the increase in GST rates starting July 1, Patanjali Ayurveda has said it will factor in input credit adjustments before taking a call on retailing rates. Tijarawala had said on Friday that since input costs were being reduced, the company intended to absorb the increased tax outgo.  "Initially, we will not pass on any hike to consumers, and review the price strategy at a later stage,” he had said.

Source : www.htisec.com

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