Kiranas, distributors turn lean as countdown to September 22 begins

Neighbourhood grocers, traditional distributors of fast-moving consumer goods as well as quick commerce platforms are refusing to accept large supplies from companies as they don't want to be saddled with unsold stock at current prices ahead of the revamped goods and services tax (GST) rollout on September 22, executives said. This has also led to consumer goods companies reducing supply cycles to kirana stores and quick commerce platforms.

Replacement Cycle

"Our dark stores and warehouses are now operating on lean inventories. We are not accepting large supplies till new stocks come in," said a senior executive at a large quick commerce platform.

A personal care company has reduced supply replenishment cycles to retailers, both online and physical stores, from the usual 7-10 days to one-two days now or even same-day deliveries, since packs with existing prices will need to be replaced very soon, said a senior executive.

"We are now operating on supply cycles similar to everyday essentials such as milk, bread or soft drinks," he said.

This is especially the case with makers of shampoo, toothpaste, hair-oil, soap and shaving creams, which have shelf lives of at least one-two years.

Drop in Prices

While GST slabs of butter, cheese, confectionery and salty snacks will drop to 5% from 12%, that on chocolates, biscuits, corn flakes, coffee, ice-cream, bottled water, hair oil, shampoo, soaps, shaving cream and toothpaste have been reduced to 5% from 18%.

"We are working across a complex supply chain to effect the changes as swiftly as possible," Prashant Peres, managing director, South Asia, Kellanova (formerly Kellogg), wrote on LinkedIn. "We have aligned our packaging and supply chain to ensure an aggressive roll-out for consumer benefit by September 22."

While noting that the revised tax slabs will ignite demand, analysts and consultancies said a seamless transition will be crucial to ensure all the benefits reach the end consumers. EY India tax partner Sanket Desai cited challenges to implementation such as "input tax credit accumulation on account of the inverted duty structure, old stock repricing and system upgrades and reduction in government incentives linked to net goods and services tax cash outflow."

'Efficient Transition'

Once GST 2.0 is in place, companies have said prices of large packs will be cut up to 15% price, and that smaller smaller packs of ₹5 and ₹10 will contain more quantity. The latter is crucial for categories such as confectionery, chips, salty snacks and shampoo sachets, much of which are sold in small packs. "It is still very early, and with complex supply chains across the different businesses, an immediate response isn't practically possible," said Jyotiroop Barua, business head, confectionery, at Pulse candy maker DS Group. "Our product teams are actively working on the details to ensure a smooth and efficient transition."

Traditional Traders

Grant Thornton said in a note on Saturday that transition planning would have to cover inventory at depots and stockists, relabelling and transfers to avoid input tax credit accumulation, as well as identifying areas requiring renegotiation.

Quick commerce (Q-comm) platforms such as Blinkit, Amazon Now and Swiggy Instamart are offering discounts on bulk packs of categories such as hair oil, biscuits, cornflakes and sauces to clear stocks weeks before the GST rollout.

Traditional traders, on the other hand, don't have the capacity to sell at discounts on their own. The All India Consumer Products Distributors Federation's president Dhairyashil Patil said the reforms would improve distributor and retailer liquidity by an estimated ₹4,000-₹5,000 crore across the network due to reduced working capital blockages. The entity represents over 800,000 distributors.