Retailers and vendors refuse old notes: Small traders caught in the middle

Sanjay Dev, a supplier of traditional Maharashtrian sweets to retailers in Mumbai and other cities, is facing a double whammy following the government’s decision to ban R500 and R1,000 currency notes. Due to the slowdown in demand and the cash crunch in the market, retailers and distributors are placing fewer orders and some even want him to accept older currency notes. While, he can wait for a few more days, he still has to pay his vendors who supply raw materials. And there’s the catch -- They will not accept the old notes and would not even want to wait for long.

“Business has fallen in the last few days. Retailers are hardly placing any orders as their sales are down. Some distributors want to pay me via old R500 and R1,000 notes, but my vendors are not accepting these notes,” said Dev.

Following the scrapping of old notes and restrictions on withdrawing and exchanging of new notes, retail sales have been hit, adversely impacting a number of food and consumer goods makers, especially the smaller ones.

Sanjana Desai, head of business development at Desai Brothers’ Foods division, expects the company’s sales to come down at least 30% in traditional trade.

While sales through modern supermarkets are on the rise, traditional trade, comprising neighbourhood mom and pop kirana stores, still account for 72% of the overall sales of the FMCG sector.

“Retailers and distributors are not increasing value of the orders and not taking up new products either. They are only replenishing items that are completely out of stock. So overall, our sales have been reduced by around 30% in traditional channels and around 15% in modern trade,” Desai added.

While many retailers in metro cities are now accepting payments via credit and debit cards and food coupons like Sodexo, the impact is higher in smaller towns and villages, where transactions predominantly happen in cash.

“Our payments to distributors happen predominantly via cash. So until the availability of cash situation eases, we have limited our orders to distributors. Retail sales for non-essential items, too, have slowed,” said a kirana store owner in Mumbai’s suburb of Bhandup.

Some organised retailers, including Reliance Retail, are waving off the credit period and paying entrepreneurs’ dues up front. “If you are a milk or bread supplier, then the credit period could be very short, in some other cases it could go up to 30 days,” said Damodar Mall, CEO, grocery, Reliance Retail. “We are saying, irrespective of that, whatever is the outstanding with us, we will disburse it. This would help them get their businesses back.”