GST: FMCG firms offering huge discounts, but cautious retailers reducing stocks

BENGALURU | NEW DELHI | MUMBAI: Fast-moving consumer goods (FMCG) companies such as Hindustan Unilever, Procter & Gamble and Colgate-Palmolive that had altered manufacturing and pricing strategies in anticipation of the goods and services tax are now reaching out to wholesalers and retailers and offering them product and cash discounts.

With GST set to be rolled out on July 1, companies want to make sure that any initial uncertainty over the levy doesn't mean shops temporarily halt stocking consumer wares as they get accustomed to the new regime.

These firms are also keen to dispose of as much inventory as possible in May and June so that they are not saddled with unsold inventory on July 1.

"We cannot manage and evaluate inventory across millions of outlets in the pre-GST and post-GST scenario. It will be too complex since rates are different across different products," Dabur chief executive Sunil Duggal said. Dabur makes Real juices and Vatika shampoo.

While Colgate is said to have promised to double margins to retailers and wholesalers for May and June, Santoor maker Wipro has promised its distributors compensation for excess stock and difference in tax, said people aware of the matter. India's biggest consumer goods company said clarifications are required to make for a glitch-free shift to the new regime.

"HUL is working closely with its extended ecosystem of vendors and customers to target a cutover by July 1," it said in an email. "However, for smooth and timely transition we require an early clarification on a few open items like formal communication on cutover dates, reimbursement of fiscal, operational items like GST return formats, etc." Convincing the trade could be difficult.

"Companies such as Colgate and P&G are luring us to buy more by giving 2-4 per cent margin incentive, but I don't want to carry a burden on my shoulders," said Vasudev Chutwani, owner of Rajasthan-based Shankar Shree Enterprises, who has reduced his stock by 20 per cent across products of companies such as Dabur, Marico and HUL, and is planning to further bring it down to half in June, especially after June 15. "Even small shopkeepers are reducing purchases by 25 per cent ."

For wholesaler JT Brothers, the story is the same. "Almost every company such as Dabur and HUL is giving 3-7 per cent additional schemes, but we are not interested," said owner Kapil Advani, who has reduced stock by 50 per cent and will cut it by 75 per cent in June. Also, business is down by 50 per cent, he added, attributing this to overall slowdown.

"We are considering stepping up retailer margins," said Dabur's Duggal.

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