FMCG Companies Brace for Short-Term Disruption as GST Changes Loom
FMCG (Fast-Moving Consumer Goods) companies are facing a significant challenge as they prepare for a new GST regime taking effect on September 22. The government’s decision to cut taxes on many common-use products has left the industry with a massive amount of inventory that has the old, higher MRP printed on it.
This shift, while expected to boost consumption in the long run, is causing “short-term disruption” for companies that must quickly figure out how to sell existing stock at lower prices.
Key Challenges for the Industry
- Waiting for Guidance: The biggest hurdle is the lack of clear guidelines from the government on how to handle the existing stock. Industry bodies are in talks with the government, hoping for a grace period or a solution that allows them to sell old stock with a discount.
- Navigating Price Changes: Companies are evaluating how to pass on the tax cut to consumers. This process isn’t simple, as it involves either reprinting labels, which is a massive logistical challenge, or finding alternative ways to apply the new, lower prices.
- Varying Impact: The disruption will affect companies differently. Food products, which have a short shelf life and high sales velocity, may move through old stock quickly. In contrast, personal care items and durables with a longer shelf life will face more significant challenges.
How Companies are Responding
- V-Mart is tackling the issue by not changing the MRP on existing products. Instead, the company is updating its billing software to apply a discount at the checkout, directly reflecting the GST reduction on the final bill. They’re also using in-store signage to inform customers.
- Blue Star, an air conditioner manufacturer, will start billing at the new, lower 18% GST rate from September 22. To help dealers who are sitting on higher-priced stock, the company will compensate them for the interest on their excess credit, easing the financial burden.
- Other companies, like Emami and Godrej Consumer, are still evaluating their options and working to determine the best way to handle the changes while ensuring the benefits are passed on to consumers as quickly as possible.
While the new tax structure, which lowers the GST on many FMCG goods from 18% to 5%, is a positive step for consumer spending, the industry will have to navigate a potentially “choppy” September as it adjusts to these new changes.