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Drop in demand may force Parle to lay off up to 10,000 employees

18% GST and low demand in the FMCG sector has forced the company to hike prices; affecting their sales

, ET Bureau|
Updated: Aug 21, 2019, 09.41 PM IST
Parle may lay-off up to 10,000 employees over weakening demand
Parle may lay-off up to 10,000 employees over weakening demand
NEW DELHI: The country’s largest biscuit maker Parle Products said on Tuesday that it may have to let go of 8,000-10,000 people if the ongoing consumption slowdown persists, indicating that all’s probably not well with the economy.

“We have sought reduction in the goods and services tax (GST) on biscuits priced at Rs 100 per kg or below, which are typically sold in packs of Rs 5 and below, but if the government doesn’t provide that stimulus, then we have no choice but to let go of 8,000-10,000 people from our workforce across factories as slowing sales are severely impacting us,” said Mayank Shah, category head of Parle Products.

With sales of over Rs 10,000 crore, Parle, which makes the popular Parle-G, Monaco and Marie brand of biscuits, employs 1 lakh people, and operates 10 company-owned plants, in addition to 125 third party manufacturing facilities. More than half of Parle’s sales come from rural markets.

The sub-below Rs 100 per kg biscuits were taxed at 12% under the previous tax regime, and firms had expected the GST rate to be fixed at 12% for premium biscuits and 5% for the lower-priced ones. But after the government introduced the GST two years back, all biscuits were brought under the 18% tax structure, forcing companies to increase prices which affected sales. Parle, too, had increased prices by about 5%, which led to sales declining significantly, Shah said.

Another biscuit and dairy products giant Britannia managing director Varun Berry had voiced similar concerns last week when he had said consumers are even hesitating to buy Rs 5 packs of biscuits. At a post-earnings conference call, Berry had said that consumers are thinking twice before buying even a Rs 5 worth of product, indicating a “serious issue in the economy”.

“We’ve only grown 6% and the market is growing slower than that,” Berry said in the call. The Nusli Wadia-promoted company’s net profit fell 3.5% year-on-year to Rs 249 crore for the quarter ended April-June 2019.

Parle’s Shah said with consumers downgrading over the past two quarters, offtake from retailers is getting severely impacted. “Weakening consumer demand is because of increased GST on biscuits and worsened by the absence of adequate government stimulus. We have multiple biscuit brands that are aimed at mid- and low-income consumers which form the core consumer base of a category such as ours, and we are hoping the GST increase will be rolled back if the government wants to revive demand,” he said. Low-priced biscuits anyway operate on low margins.

Last month, market researcher Nielsen had revised its growth forecast for the FMCG sector to 9-10% in 2019 from its previous outlook of 11-12%, citing a sharp rural slowdown. Nielsen said the slowdown was significant across all food as well as non-food categories, with categories such as salty snacks, biscuits, spices, soaps and packaged tea leading a slowing consumption.

Citing Nielsen data, industry officials said growth in the FMCG sector has declined in the past four quarters consecutively since July-September 2018 – both by value and volume – as consumers down-traded to lower-priced daily use products in urban markets and rural growth slowed.
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