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FMCG items start to pile up in supply chain as demand starts to taper off

Inventory days and credit days on the rise

FMCG
Sharleen Dsouza Mumbai
3 min read Last Updated : Sep 07 2023 | 8:07 PM IST
The fast-moving consumer goods (FMCG) supply chain has started to fill up, with demand on the wane. Rainfall remained elusive for most of August, affecting incomes and consumer demand. Consequently, the number of inventory days is on the rise for stockists, while credit days between retailers and distributors have also gone up.

Amid the changing scenario, distributors and stockists have also curtailed their purchases.

A Maharashtra-based distributor, who caters to the western region and did not want to be identified, said that demand had slowed down considerably and his inventory holding days were increasing gradually. Right now, his inventory holding days stand at 9, which is two days more than his average.

He also reduced his orders for items ranging from shampoos to soaps by around 10 per cent. “Stocks at the retail level have started to reduce, as a result of which we are placing orders for lower amounts,” he said.

Another distributor from the eastern region said that the inventory holding days had doubled in the last one month. From an average of 15-18 days, it has gone up to 30 days, with demand beginning to dip.

“While companies are yet to pressure us to meet targets, even maintaining last year’s base is now becoming difficult,” the distributor said.

Retailers said that the credit period that they bargain for has increased to about 25 days from 12 to 14.

A similar situation persists in the northern belt, as wholesalers and retailers are cutting down on their stocks. “The impact of weak demand has started to trickle in; the real impact will be seen once we get closer to the harvesting season,” said a distributor of FMCG goods in Punjab.

He, too, said that the number of credit days of retailers and semi-wholesalers had gone up to 21 from an average of 15. The distributor expects it to worsen and go up to 30 days as consumers tighten the purse strings.

Companies also fear that the optimism that they drew from the revival of demand in the last few months would be short-lived, as consumers are buying less. Some may even alter their growth outlook.

Rural demand has just swung back into the positive territory after being under pressure for over a year.

NIQ (formerly known as NielsenIQ) said in its “FMCG Snapshot” for the June quarter revealed that the industry in India grew at 12.2 per cent in value, compared to 10.2 per cent in the previous quarter and 10.9 per cent in the year-ago period. The June quarter also saw an overall volume growth of 7.5 per cent, the highest in eight quarters.

NIQ also said that the April-June quarter of 2023 was the best in a year and a half, with positive strides across all growth vectors tracked by the consumer intelligence firm.

Taking stock

·  Distributors across regions point to demand slowdown and increase in the number of inventory holding days

·  Retailers said the credit period has increased to about 25 days from 12-14

·  NIQ said in its “FMCG Snapshot” that the April-June quarter of 2023 was the best in a year and a half

·  Companies fear that the optimism stemming from recent demand revival would be short-lived, as consumers are buying less; some may even alter growth outlook

Topics :FMCG firmsSupply chainRural income