With little cash in hand post-demonetisation, India cuts down on groceries and toiletries

Big supermarket chains rescued urban shoppers.
Big supermarket chains rescued urban shoppers.
Image: Reuters/Vivek Prakash
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In the last 20 days, households across India have had to take some tough decisions.

They have bought fewer bars of soap and packets of biscuits, and have wavered between choosing butter and cheese. All this because the Narendra Modi government’s Nov. 08 decision to ban old Rs500 and Rs1,000 notes has led to a severe cash crunch, forcing urban Indians to rely on swiping cards for purchases.

However, for small traders who mostly accept only cash, the situation has been dire. More than 60% have reported a dip in sales, according to Nielsen which tracked Indian consumer behaviour in the days following demonetisation.

Here’s how India’s grocery industry has been affected.

Supermarket shoppers

Despite an initial slump in sales, Nielsen estimated that demonetisation was good news for modern trade. Consumers rushed to large departmental stores thanks to the ease of using cards and transacting through digital wallets. In a report dated Nov. 24, Nielsen said customers snapped up food products, particularly packaged flour, rice, baby food, tea, and cooking oil in the week after demonetisation.

After the news broke, retailers were quick to leverage SMS notifications to spread the word that they were accepting old notes, besides extending working hours all the way up to midnight, leading to a jump in sales, Nielsen said.

Kishore Biyani-owned Future Group saw a spike in sales after an initial dip. Business jumped by between 20% and 50% across hypermarket chain Big Bazaar and Fashion at Big Bazaar outlets, Biyani said.

Digital money

Since demonetisation sucked out 86% of India’s currency by value, consumers have been shifting to digital payment options.

Nielsen estimates that roughly 12 million more Indians began using digital wallets in the first week after demonetisation, with the installation of e-wallet apps doubling in this period. Compared to the week before the cash-crunch, digital wallets transactions were up by a record 28%, Nielsen said.

“A large part of this would presumably have been driven by aggressive advertising by these companies and also a quick adoption of digital payments by smaller businesses like restaurant and cafes, kiranas, small vendors, auto-rickshaw drivers etc,” said Prasun Basu, president, south Asia, at Nielsen.

Mobile wallet company Paytm has registered over five million new users since Nov. 08 and digital payment company Mobikwik, saw a 40% jump in app downloads.

Small traders suffer

Even as the big chains rescued urban shoppers, small traders across India felt considerable pain. These mom & pop stores, comprising 92% of all grocery shops in the country, rely on cash, with only a few having access to card machines.

Nielsen surveyed over 3,200 small retailers and distributors across urban and rural India and 62% reported a slump. Categories such biscuits and salty snacks, which consumers typically buy on-the-go, were the worst hit.

Estimates by Nielsen suggest that under 1% of such stores are equipped to use card machines, digital wallets or coupons. During this period, these traditional retailers relied on extending credit to shoppers; this was so more in rural areas (35%) than in urban (27%).

In an analyst call on Nov. 28, Hindustan Unilever, India’s largest consumer goods company, said demonetisation will hit business over the next few months. Wholesalers were buying less stock due to the cash shortage, it said.

Shopkeepers surveyed complained of distributors not visiting them as scheduled to deliver goods, citing lack of cash.

Yet, despite all this, Nielsen’s survey suggests that consumer sentiment over the government’s decision remained favourable. Around 74% viewed it as a positive move and 33% agreeing that it will help curb black money or unaccounted wealth.