Business & Finance

Festive Season Split Across Q2 and Q3 Pressures Consumer Companies

By Soumya Gupta

The festive season in India this year is divided between the second and third quarters, forcing consumer companies to adjust their operational plans and earnings forecasts. A sharp rise in input costs across industries is squeezing margins during this critical sales window, while persistent inflation threatens to deepen a K‑shaped recovery by pushing middle‑class households to cut discretionary spending.

Sales during the festive period are vital for Indian consumer companies, though the impact varies by product category. Manufacturers of consumer staples such as packaged food, sweets, snacks and edible oil typically see a temporary sales spike. In contrast, businesses selling jewellery, consumer durables and apparel can generate anywhere from a third to more than half of their annual revenue during the period. Both online and offline channels feature exclusive product launches and steep discounts around Dussehra, Diwali and other major festivals, with sales momentum in some categories, particularly fashion, extending into Christmas and year‑end.

Multiple headwinds are reshaping demand projections. First, the calendar timing of major festivals has split the core festive period across September and December, shifting anticipated sales into October and weakening second‑quarter results while potentially lifting third‑quarter performance. Second, persistent input‑cost inflation is squeezing corporate profitability. Sharp price hikes in crude oil, plastic packaging, agricultural inputs such as milk and sugar, and key hardware components like copper and memory chips are putting margins under pressure. In response, most consumer companies have raised prices while offering more conservative discounts.

Early signals of consumer spending are mixed. E‑commerce platforms report strong initial figures, but demand for online‑heavy electronics such as smartphones and laptops has slowed sharply as surging memory‑chip costs forced manufacturers to hike retail prices. Broader inflationary pressures are also weighing on working‑class budgets, dampening appetites for mass‑market goods. Shares of value apparel chains such as V2 Retail and Vishal Mega Mart slid earlier this month after management teams cautioned that festive consumer spending could remain subdued.

To maintain sales momentum, many firms are opting to absorb higher input costs rather than passing them entirely to consumers. For example, LG Electronics raised prices on air conditioners this month while leaving its broader consumer electronics portfolio untouched. Similarly, despite wholesale milk prices climbing across India over the past two to three months, consumer packaged goods makers like Nestlé have kept retail prices steady while others initially hiked prices earlier this year. Concurrently, retailers are leaning heavily on premium offerings to power top‑line growth as rising costs threaten to compress mass‑market demand.

Consumption may risk becoming K‑shaped again, though current data does not yet show a pronounced shift. Rising prices for consumer staples and big‑ticket discretionary items tend to hit working‑class consumers first. Early signs of strain are already emerging in segments such as smartphones and value fashion, alongside a slight uptick in bank financing for festive purchases on e‑commerce platforms like Amazon. A critical variable is the ongoing El Niño, which threatens upcoming planting and harvest cycles and could depress agricultural incomes. While the government reduced GST rates across several consumer categories last September to stimulate demand and curb persistent K‑shaped consumption, those tax benefits have now largely dissipated.