Sales momentum seems to be moderating in the modern retail channel for FMCG categories as a brutal year has left the nation’s retailers with high stock levels of as much as 2.5 months of sales, said analysts. Inventory in modern trade normally ranges up to 45-60 days based on store location. Any inventory in excess of this adds to inventory carrying costs and could force retailers to offer discounts to sell goods before they hit their expiry date, said retail experts.

“If consumption habits are unanimous in urban India, moderation in growth momentum could be evident in third quarter of fiscal year 2012 performance,” said Pritesh Chhedaa and Jay Shroff at Emkay Global Financial Services. The broking firms report said that relatively old inventory dated back 2.5 months was seen in categories such as hair oils: Dabur Amla and Bajaj Almond drops and toothpaste: Colgate Max Fresh and Pepsodent Gum Care. While some categories such as milk and food-noodles have seen relatively fresh inventory dated back 1.5-2 months, new inventory was seen for Nestle, Marico and Britannia, the report added.

Modern trade has been a key channel for consumer staple companies to sell higher margin premium products by showcasing the full variety and getting displays in the right ambience. A stuffing up of this channel would indicate that consumer budgets are hurting and could potentially point to a slowing down of sales. “The volume decline will be more evident from the next quarter onwards due to price hikes, downtrading,” said Sreekanth PVS, analyst at Angel Broking. Most consumer goods firms such as Hindustan Unilever (HUL), Dabur, Godrej Consumer Products (GCPL) have hiked prices by three to 10 per cent in the current fiscal year.

“There is definitely slight moderation in certain categories because of the overall inflationary scenario and downtrading,” said Mehul Desai, research analyst at KR Choksey. Investors have so far bet on this sector on the premise that growing population and rising income will continue to boost demand for consumer staples and allow brand owners to profit from growing domestic consumption.

Festival season in October appeared “relatively silent”, unable to attract footfalls at the big retail centres, said the report by Emkay Global. “With retail sales plummeting, the chances of having a really decent recovery are “rather limited in the next two quarters”, said Mark Ashman, CEO at Hypercity Retail India. The chain has seen flat like-to-like sales in December comparing with the previous year, said Ashman.