From consumer goods to tech: Inflation bites into corporate sales

A decline in people's purchasing power due to persistent high inflation, surpassing 9% since March 2023, has significantly affected corporate sales across various sectors – from fast-moving consumer goods to motor vehicles, mobile phone usage, apparel products, footwear, steel, cement, and ceramics etc, industry insiders say.

Businesses also express uncertainty regarding a swift recovery, pointing to the existing challenging economic conditions in Bangladesh and the country's vulnerability to adverse effects from global economic and geopolitical developments.

"Our sales have gone down by around 15% in 2023," said Mostafa Kamal, chairman and managing director of Meghna Group of Industries, one of the largest conglomerates in the country with a heavy exposure in consumer products, such as sugar and edible oil.

He blamed the decline of sales on the abnormal price hike that has eaten up consumers' purchasing power. He said sugar prices have shot up to Tk150 per kg now from around Tk80 one and a half years ago. "How will people buy it?"

Kamal said due to a decrease in sales, there has been a proportional decline in Meghna Group's imports during the current fiscal year. In the fiscal 2022-23, Meghna Group imported goods and machinery amounting to over $3 billion.

Zaved Akhtar, CEO and managing director of Unilever Bangladesh, the largest fast moving consumer goods brand in the country, also witnessed a decline in sales.

"On a Moving Annual Total basis, the overall market volume has declined by almost 11%. The volume of Unilever brands also experienced decline, although the decline is less than the market percentage," Zaved told The Business Standard in an email reply.

Moving Annual Total Basis is a measure that considers the total sales or volume over the most recent 12-month period, providing a moving or rolling average to account for fluctuations and seasonal variations.

"There has been an overall reduction in volume across all categories. It has, however, been more noticeable in the discretionary categories such as skin care, nutrition, and hair care, especially in the nation's northwest and southwest rural areas," Zaved said.

He also said the urban poor have also equally been impacted as customers in the mass and mid-segment have switched to smaller-size packs or discount brands. However, he said the more premium segments have been more resilient.

Yasir Azman, CEO of Grameenphone, said his company's revenue from voice calls is on a negative trend now from 30% growth earlier. "It is a big dip and that is a concern," he said.

Taimur Rahman, chief corporate and regulatory affairs officer of Banglalink, said inflation has also affected their business as people need to spend more on food than mobile phone usage.

"We are witnessing a decline in phone usage since October last year," he told TBS.

Coincidentally, October's food inflation shot up to a 12-year high at 12.56%.

Ceramics saw a 30% decline in sales in 2023 compared to that of a year ago, according to Irfan Uddin, general secretary of the Bangladesh Ceramics Manufacturers and Exporters Association.

He identified a number of reasons for this decline. These include the dollar crisis, supply interruption and gas crisis, which collectively affected overall ceramics production, especially tiles that account for over 80% of the Tk12,000 crore market, said Irfan, also the managing director of Farr Ceramics.

Md Shahidullah, first vice president of the Bangladesh Steel Manufacturers Association and organising director of the Bangladesh Cement Manufacturers Association, said the steel business experienced a more severe impact than cement last year. This was attributed to the dollar crisis, leading to a 30-40% reduction in LC openings for the import of melting scraps, the primary raw material for rod production.

"Sales have also gone down by around 35% in 2023. Dollar crisis, gas supply shortage and high inflation in the country have led the steel sector down," said Shahidullah, who is also the managing director of Metrocem Ispat and Metrocem Cement.

The cement sector fared relatively better, with sales experiencing only a modest decline of around 1% last year, compared to an average annual decrease of 8-10% over the past decade, he added.

Rang Bangladesh founder Soumik Das, vice president of the Fashion Entrepreneurs Association of Bangladesh, said last year the branded apparel market shrunk by at least 15% as the middle-income people were not shopping like before.

"We expected a rebound in sales after the election, but it is not happening. In fact, this seems to be the worst January in many years," he said.

Branded apparel sales are roughly 20% down nowadays, if compared to the pre-Covid level, while footfall in the outlets is down by a third, despite the fact the nation is celebrating each of the festivals.

Dilip Kajuri, chief financial officer of Apex Footwear, said sales of high value shoes dropped by 30% in the last one year as inflation hurt salaried people and average businessmen, who were looking to cut discretionary costs.

In a substitute effect, the demand for budget footwear was little higher, he added.

"Footfall in the Apex showrooms halved year on year in December. All the costs were on the rise, while passing it all on to the struggling consumers was not feasible for majority businesses," he said.

Price hike has also impacted motor vehicle sales, which went down by 38% in 2023 compared to a year ago, Bangladesh Road Transport Authority data showed. The highest impact was on the bike and delivery van, which are used by low-end consumers, with a decline of 39% and 64%.

Kabir Hossain, who runs a grocery shop on Dilu Road in Moghbazar, Dhaka, said his sales dropped by 20%-25% as people have been buying less for the past several months. "Those who used to buy 5 litres of soybean oil at a time, now take 2 litres," he said.

Forecast for 2024

Unilever CEO Zaved Akhtar said market conditions are likely to pose challenges in the near term. Considering the growing integration of the Bangladesh economy into global and regional value chains, any unforeseen global economic or geopolitical disruptions could have adverse effects on Bangladesh, which is already facing significant challenges.

Md Shahidullah, managing director of Metrocem Ispat and Metrocem Cement, said they are quite uncertain about the business prospects in 2024 as steel millers are now facing inventory shortages.

"We have to fully rely on imports for melting scraps, but we could not import adequately in 2023 because of the dollar crisis. Now our raw material inventory is almost exhausted," he said.

Shahidullah said emerging challenges, particularly the recent disruption in the Red Sea route, led to a 50% or more increase in shipping freight costs. If the government proceeds with its electricity tariff hike plan, rod prices could surge by Tk5,000-Tk6,000 per tonne, placing additional strain on consumers' budgets.