GST impact: Small grocers shift away from unorganised trade, sign up with wholesale majors

MUMBAI: While last November’s demonetisation choked the cash-based unorganised retail trade in the country, the game-changing Goods and Services Tax (GST) is rewiring the retail eco system in other ways.

Walmart and Metro Cash and Carry stores have seen mom-and-pop store memberships surge as they shift away from unorganised wholesalers yet to be GST compliant.

A greater number of small grocers are rushing in to buy daily essentials from the bigbox format, a trend that companies expect to continue in the long term.

“There would be some level of channel reset in which we believe that organised wholesale will become stronger,” Sanjiv Mehta, managing director at Hindustan Unilever said in an investors call last week. “And just speaking to Walmart the other day, the numbers of customers they have enrolled in the last couple of weeks have been much higher than what they have done in the past, which is a very clear indicator that organised wholesale will go up.”

  

 Nearly 2.6% of traditional trade in all consumer product goods (CPG) moves through organised wholesale and has been growing faster than modern trade, albeit on a lower base. Cash and carry operators sell merchandise to local kirana stores, hotels and catering firms.

“There will be a process of education, although we didn’t expect memberships and sales to surge so quickly. GST will definitely benefit us in the long term as smaller customers get habituated to buying from organised channel,” said Krish Iyer, CEO at Walmart India.

India moved towards a unified tax structure that replaced multiple state and central levies from July 1. While the rollout has largely been smooth, consumer goods makers, retailers and trade channels have experienced some disruptions, especially in June. Most companies and distributors tried to empty their stocks by June 30 because of uncertainty over transition norms and new prices.

While both Walmart and Metro saw sales dip in the first week of July, it recovered sharply due to increase in memberships.

“Increased customers, especially from smaller businesses, resulted in higher sales but smaller basket size on an average. We have set up GST kiosks at our stores to help traders file returns,” said Arvind Mediratta, managing director, Metro Cash and Carry India. “We also expect several unorganised traders shutting shop due to non-compliance.”

Source::: The Times of India, dated 25/07/2017.