Plans to ban Paan shops from selling consumer goods to affect FMCG stocks

The government is working on a proposal for banning Paan and Cigarette shops from selling consumer goods such as biscuits, soft drinks, biscuits, candy and more. If the move is implemented, then FMCG companies would get hurt with respect to declining in sales.

On September 21, the health ministry had asked state government to develop a mechanism through which shops will be permitted through municipal authorities for selling Tobacco products. In the letter filed, it was also mentioned that such shops would be prohibited from selling non-tobacco products including sweets, chips, biscuits, and soft drinks. The intention was clearly to prevent children and non-tobacco users from exposure to such products.

This move was not taken well by several FMCG companies dwelling in the food space.

“To avoid a harmful product, you can’t adopt a blanket ban on all the other products,” said B Krishna Rao, category head at Parle Products that sells snacks, confectionery, and biscuits, categories which ring up 15-25% of sales from paan shops. “In India, they are 2.5 million, or about a quarter of the country’s store universe, and the impact will be huge but we can’t quantify unless it is close to implementation.”

With sales expected to drop by the implementation of such move, the channel of marketing for FMCG companies will get disturbed, thereby calling for the loss of profits and drop in share prices.

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