As Demand Returns, Consumer Firms Start Scaling Up Capacity

With the job market looking up and pent-up demand playing out, consumption spends are on the rise. While some picked up the uptrend early and have already expanded capacity to capture the growth, others are following suit as the evidence on the ground is becoming increasingly compelling.

The sales of homes across seven cities jumped 83 per cent in FY22 to 2,80,000 units, albeit on a low base. The trend has spilled over into the current year. In July, for instance, Mumbai city alone saw sales of 11,340 units, the highest in a decade, According to Anarock Research.

With the restrictions of the pandemic now gone, the upcoming festive season is expected to see strong sales of apparel, white goods and jewellery. Demand for cars has been strong for some time now and with the improved supply of chips, July sales are estimated to have risen 15% year-on-year compared with 13.2 per cent in FY22.

Spends are tipped to rise in the food and beverages markets too. The Quick Service Restaurant (QSR) space in particular is expected to clock in strong sales as mobility increases. Westlife, for instance, reported a new high for sales per store in the June quarter with the average annualised sales at INR 6.7 crore. Again Varun Beverages, which has expanded its distribution reach by 0.75 million outlets over three years, now plans to add capacity in the country by 30 per cent in 2023.

United Breweries reported a better than expected 121 per cent y-o-y increase in volumes in Q1FY23, even though it hiked prices for most markets. Compared with Q1FY20, the rise was 8 per cent. Not surprising then that mall space is increasing — new malls across 10.15 million sq ft will come up this year, which is 86 per cent more than that created in 2021, says Anarock.

Mahindra Holidays plans to add 400 rooms every year and will soon own 5,500 rooms. An aggressive Asian Paints added 5,000 new retail outlets in the three months to June on the back of 15,000 outlets added in FY22. Many of these are located in the smaller towns.

The rise in smartphone penetration and digital payments has helped companies like Shoppers Stop whose mobile app was downloaded by 600,000 people in the June quarter. The retailer opened six stores in the first quarter of FY22 and encouraged by the 383 per cent jump in sales in the June quarter, it is planning many more in tier 2 and 3 cities.

Venu Nair, MD & CEO at Shoppers Stop, says the company plans to launch new stores primarily in tier 2 and 3 cities while sustaining its investments in store renovations.

Meanwhile, Avenue Supermarts, which operates the DMart stores, continues to scale up having expanded its presence in a dozen cities last year. In the June quarter alone, 10 stores were added, taking the store count to 294. Given how the retailer is adding bigger stores of up to 60,000 sq ft, compared with the average of 41,200 sq ft earlier, the management appears convinced business is going to be brisk.

Some evidence of renewed consumer activity can be seen in the growth of retail credit, which rose 18% year-on-year in the April-June period compared with an increase of 13 per cent in FY22. Again, albeit on a very low base, retail credit card spends at SBI Cards increased 70 per cent y-o-y in the June quarter.

Analysts expect consumer discretionary firms to report a high 40-50 per cent revenue growth in FY23 on the back of pent-up demand and a good job market in the organised sector. Also, the penetration of segments such as white goods remains relatively low. The big spurt in demand for household goods has been fuelled by the jump in home sales.