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Retail industry likely to see 10-12% growth rate in FY20, says Godrej Appliances

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Fast moving consumer goods (FMCG) companies and consumer durables makers are expecting a boost in sales ahead of the general elections. Sadashiv Nayak, CEO of Big Bazaar and Kamal Nandi, business head and executive vice president at Godrej Appliances, shared their views on consumption pattern ahead of elections.

Retail industry likely to see 10-12% growth rate in FY20, says Godrej Appliances
Fast moving consumer goods (FMCG) companies and consumer durables makers are expecting a boost in sales ahead of the general elections. Sadashiv Nayak, CEO of Big Bazaar and Kamal Nandi, business head and executive vice president at Godrej Appliances, shared their views on consumption pattern ahead of elections.
Here's the edited transcript of their interview with CNBC-TV18:
Q: How do you view consumer trends shaping ahead of the elections? What is the demand like on the ground in the stores?
Nayak: Anything which creates buzz in the country has always helped modern retail, helped Big Bazaar, helped many of our formats, I see elections in the same space, it gets families together, it gets everyone together. Along with election, there is one more significant thing happening in the next quarter and that is IPL. So, anything which creates buzz for us is good, consumption definitely tends to pick up, there are more occasions getting created, our fashion and our snacking business goes into a very positive space - upwards of double-digit growth. So overall anything which creates buzz is good for us.
Q: Do you concur that generally the buzz itself will lift volumes or will we require something more concrete on the ground?
Nandi: Specifically for our industry of appliances, I think more than election, the weather plays a big role and we are expecting a good summer this year and I am sure that is going to definitely boost consumption in a big way, though delayed but I think it will be an elongated summer and the temperatures are expected to be pretty high. So we definitely expect very high consumption of cooling categories this summer.
Q: We have seen a slowdown in the auto space off-late, it is visible in the inventory data. Based on that context how do you see spending shaping up, are people spending less overall?
Nayak: We are seeing a very buoyant spending pattern especially in the food, daily necessities and the grocery space. The fashion spending also is extremely robust with categories like kids apparel going upwards of 25 percent. So overall we are seeing a very positive space.
There are certain categories like durables, which could have been better but even there, we have nothing to complain, customers have been blessing us with good sales. I see a very different pattern - when you look at small towns and certain suburbs of cities, they are discovering a new normal, a new high and we have stopped looking at growth numbers there, it is really defining a new pattern, a new high which we are going to achieve. So overall a very positive pattern. We are not experiencing any kind of headwinds otherwise.
Q: The kind of feedback that we have picked up is that the consumer durables space has seen a bit of a slowdown for example even last year was a bit sluggish. Do you expect it to persists and where are we in this cycle?
Nandi: There has been a slowdown and largely that we have seen in the last one year because of the weather not being okay for us, at the same time there has been a little bit of uncertainty in terms of the overall economy, thereabout prices going up and that has impacted a lot of purchase sentiments. Going forward, clearly we see the sentiments to improve, to be more positive, given the way the whole equations are panning out in the economy, I think there will be more positivity and that should drive higher consumption. Also this year all projections are that the weather will be good, the temperatures will be high, so cooling consumption will go up for sure.
Q: Are we seeing a shift from unbranded to branded and from unorganised to organised retail specifically in some of these tier II, tier III cities that you spoke of where a lot of demand is emerging? This whole GST shift, is it helping organised players and organised brands more?
Nayak: We are seeing two things - there were certain categories like footwear, dining ware, serving ware where there is definitely a move from the unorganised to the organised. However more importantly if you look at our own brands, be it in the apparel space or in the food space - Future Group has lot of our own brands, customers are asking us for something which is of interest, something which is changing freshness almost at a periodicity of 3-4 months and something where they can experience something new, whether it is a body wash at one end, whether it is nightwear or whether it is a new kind of a sipping bottle for my exercise regime, we are experiencing people coming in and pushing us for certain newness and a certain freshness. The period for freshness has almost come down to 3-4 months and fortunately, that push has given us enough momentum to go and change ourselves to make sure that we encash on the opportunity.
Q: Looking ahead into FY20 what kind of expansion plans are you working for when it comes to Big Bazaar?
Nayak: We have always been buoyant in terms of planning around 25 to 30 new Big Bazaar's but for various reasons we end up opening around 20 to 22 Big Bazaar's. So, that is going to be a common theme going forward for the next 5 years.
What is more interesting is, we are now witnessing many cities where we are opening the second Big Bazaar or the third Big Bazaar and we are seeing business happen, for example, Nagpur, Bhubaneswar we are now almost 5 Big Bazaar's in each of these cities and all of them seem to be doing very well.
We are opening in a lot of small towns which possibly - when I speak to some of my colleagues and partners in the FMCG space they kind of tend to look at it as a very small town but we are witnessing a very different trajectory there, for example, Gorakhpur, Agartala and Tirunelveli down south, they are experiencing very different growth trajectories. So, our expansion today is roughly 30 percent in cities where already there was a Big Bazaar and we have multiple catchments now but 70 percent in newer towns, newer catchments which are going to be a very interesting space to watch out in the next few years.
Q: What kind of growth rates can we see in FY20 and how much of this is probably going to come from smaller towns and the rural space?
Nandi: Overall as an industry we expect double-digit growth in FY20. Last two years have been in single digits - about 5-7 percent. We definitely foresee about 10-12 percent growth in the industry. Our expectation is more growth from the rural market than the urban market because of all the schemes government is putting in place for increasing the overall earnings of the farmers, I think more disposable income will be there.
Also, tier II, tier III, tier IV as affordability is going up and with aspirations more or less same as the urban market, I think they would be consuming much more than the urban market.
If you see FY18 we have seen a slight tilt towards the rural and the upcountry market for consumption, we would see more happening in the year FY20. So, very clearly I can foresee if 10-12 percent is the average about 15 percent plus coming from the rural and tier II, tier III markets and anywhere between 8-10 percent coming from the urban market.
Q: Is that growth going to come after some big-ticket discounting? Are discounts the order of the day, what is happening with pricing, what should one expect here as we get into elections?
Nayak: At Big Bazaar we always worked on the mantra to say we are always 'sasta'. The whole idea was to have a price which is known in the market and we were the leading price. So, for us, the short term jumps have not mattered. We always worked very hard on making sure that people see us as an affordable destination 365 days. It comes out of the fact that we are in multiple categories, for us we do have occasions where we create tactical bursts of pricing just to get a new customer but otherwise the whole mantra for Big Bazaar is to say make sure that you are affordable all 365 days and you really work hard on bringing down prices all 365 days. So, for us, there has not been a major shift when it comes to a particular event which is happening in the country.
Q: Do you expect there to be some price revisions going forward?
Nandi: I do not foresee a price revision going forward because we are clearly seeing indications that the dollar is not strengthening, rather the rupee is appreciating and we are also not seeing too much of hardening of commodities and as a result, I do not see a challenge of price in the coming months. However, prices overall could be high because if you look at the whole changeover of the whole fixed speed to variable speed in case of air conditioners, the inverter technology is becoming more and more in demand and that is going to increase overall ticket price in the marketplace because inverter, in general, is an expensive technology. So, that could take up the overall price but a like to like if you see vis-à-vis last year, I do not see prices going up but the mix of premium, the mix of inverter technology could drive the overall ticket size in the industry.