Recession 2019 & Indian fmcg sector.
What is recession ?
Recession is a temporary economic situation when economic activity reduces or slow down. It is the temporary
contraction of economic activity. Recession is the economic cycle when
consumption or demand reduced and it adversely affects the complete economy. In
simple words recession means low economic activity in the system. It is a macro
economic scenario.
Consumer buys less products & services , as a result
demands reduces , less demands lead to
lower production, lower production reduces job opportunity, low job opportunity
reduces low income, low income leads to low purchasing . This is the complete
cycle.
In India people are feeling about recession due to GDP
growth come down to 5 % for first quarter
of 2019-2020. But only one quarter slow GDP growth cannot indicate
economic slow down. We need to observe more 2 or 3 quarter .
Also we have two examples of economic slow down in India. 1.In
first quarter automobile sector sales
volume down by 40 % in comparison to the same period last year . 2. Parle
Biscuit is planning to reduce it’s employee by 10000.
Now lets understand point no 1.
People are saying that due to economic slowdown , automobile
sales volume reduced by 40 % in quarter 1 in comparison to same period in previous FY.
Now as of my understanding automobile sales drop may not be
due to economic slowdown, but due to the expansion of Ola & Uber and all
other online cab service. Before online cab service being started, people used
to keep personal car in all the urban area. Every 3 or 4 people needed a car
and maximum use in a day was appx 2 to 3 hours per day, rest of the time the
car remained idle in parking place or garage.
Now the same car is moving throughout the day and carrying
more than 50 passengers in a day. So it is obvious that requirement of car is
less than before. Also Ola & Uber are the national players but there are
local players in different small town in India. People are getting habituated
with online car booking. With phone call or apps one can find a car in a short
period.
Also personal car
maintenance & fuel cost is expensive
in comparison to hire a cab. I don’t
require to explain buying a car vs hiring a car, pls go to the link.
So it is the
transformation of economic activity not the slow down.
Lets explain point no-2
Parle G biscuit is
planning to reduce their manpower due to economic slow down . But can you
remember when did you purchased a parle-G biscuit last time ?
Definitely you can’t . Demands for Parle-G biscuit is
reducing due to consumer taste change and not because of economic slow down. Day by day consumers are shifting to other category of biscuits.
Even in rural area demands for Parle-G biscuit is declining .
In my another blog I have mentioned that , fmcg is recession
proof sector, then why Parle is having such situation ?
First of all I mentioned fmcg as a whole sector not a single
company. A single company may may loss their sell due to so many reasons but
industry as a whole is less impacted by recession.
Again this is temporary phenomena , due to pessimism in
trade channel stock holding may reduce for short term. But nobody will stop
buying biscuits or soap or any other daily required product due to economic
slow down.
Pls visit the link of economics times
Further if there is economic slow down , then why Gillette
India is growing by 11 % ?
So as of my understanding it is not the economic slow down
which reduced the car sale, but due to expansion of online cab service. Again
due to change in consumer behavior or taste , Parle Biscuit is in tough time .
I am not denying the fact that due to GST implementation a
little slow down in trade & commerce, but it is temporary.
We can hope for the best.
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