Since March 2020, the world has become a very different place.. At the time of writing this piece, the impact of the COVID-19 pandemic has already been devastating for economies and livelihoods across most of the world. As of early November, the World Health Organisation had reported more than 50 million cases of COVID-19 while more than 1.25 Million people had died as a result of the COVID-19 pandemic. India has been one of the most affected nations economically during this crisis and most experts attribute the massive impact in India to the significant long periods of lockdown and the unlock procedures. The Government of India very clearly prioritised precious human lives while trying to take a more balanced approach to economic growth. In this piece, I would like to highlight the five key phases (October 2019 onwards) of the impact of COVID-19 on the Indian consumer goods’ industry. Further, the article will capture the possible scenarios that maybe played out in this sector over the coming six to twelve months.
Before we dive into these phases, it is good to understand the factors that have affected intra- category and inter-category performance within the FMCG sector. , There have been four key internal company related variables (portfolio footprint, geographical footprint, channel footprint and organisational resilience) and three key external variables (government regulations, strength of supply chain networks and consumer demand curves) that have differentiated performance of the various companies within the sector.
Now, let us examine the five phases that the FMCG sector has witnessed during the last twelve months.
Phase 1: Pre-COVID-19 phase (October 2019 to March 2020): It is an often forgotten fact that many categories in the FMCG sector were already experiencing slowing or declining growth even prior to the start of the COVID-19 pandemic. For instance, the skin and personal care categories were already experiencing lower growth rates in the winter period (October till December 2019) and in the early months of the current calendar year. The lockdown in the April till June quarter therefore acted as a catalyst to significant sales declines in that period.
During this period, many companies in the FMCG sector were reported to have dialled down media investments, were cautious on hiring and focused more on trade and consumer promotions to drive up their sales performance. Many small and large retailers were already stuck with inventory and were facing cash flow issues leading to overall credit crunch in the market. In summary, many participants in the FMCG sector had moved into a period of wait and watch prior to the lockdown that started around March 22.
Phase 2: COVID-19 crisis phase (April till May 2020): This was the most challenging period for most companies in the sector. Most companies in the sector faced massive supply disruptions as the entire country went into lockdown – probably the first in their lifetime for many industry executives. Product shortages were rampant during this period. Consumer demand during this period varied from extreme buoyancy (hand sanitisers, snacks, home essentials) to extreme distress (refreshments, candy, skin creams, deodorants, cosmetics etc). Media investments nosedived as companies held back their investments waiting for a clearer picture to emerge (this despite the fact that consumption of many forms of media remained at pre-COVID-19 levels or even increased).
The postponement of the IPL cricket tournament also led to significant cuts in media investments. Many companies announced hiring freezes while simultaneously reducing or cancelling internships. One interesting feature during this phase was the level of innovation in the supply and logistics industries. One prime example was the use of food delivery networks like Swiggy and Zomato to deliver traditional FMCG categories directly to consumers. There was also a proliferation of new product launches in the areas of hand sanitisers, ready to eat snacks and hygiene related products like fruit/vegetable washes, masks and gloves. It is safe to say that during this phase, many companies were focused on ensuring employee safety and preserving cash while simultaneously attempting to bring back normalcy to their supply chain networks.
Phase 3: Unlock phase (June till August 2020): During this period, the Government initiated many measures to bring back the economy to normalcy. Many lockdown restrictions were lifted across the country and this was a period of improving demand in many categories. There were some common themes that played across many categories and sectors. First, larger and better penetrated brands with strong equity restarted their media activity and as a result experienced much higher growth than their smaller counterparts. Pantry restocking across multiple sectors saw larger pack sizes seeing heavy demand along side bulk buying of essential goods.
Moreover, the demand generated from smaller cities meant that smaller pack sizes experienced heavy demand primarily via wholesale and super stockist networks. E-commerce was the big winner during this period as large number of Indian households either started purchasing their regular FMCG brands online or became regular shoppers on the online portals for their daily essentials. Unfortunately, this shift came at the expense of shoppers moving from modern retail formats.
Large format stores continued to experience lower footfalls due to COVID-19 related restrictions and the continued fear of shoppers that curtailed their entry into crowded shopping areas. In a nutshell, this was a period of caution with measured investment in line with business improvement although hiring continued to remain muted across many companies.
Phase 4: Revival phase (September 2020 onwards): The period witnessed the start of the festive season across many parts of the country (Ganesh Chaturthi/Onam in late August, Navaratri, Puja, Dussehra and Diwali). Multiple data sources suggest that there is a revival in demand with most of the supply disruptions completely under control. Some of the leading indicators like the GST collections by the Government in October, Nielsen data for multiple categories, retailer sales reports, auto and real estate sales indicate that there is a spike in the demand for consumer goods.
This has also been a period which saw domestic travel pick up. The biggest fillip to demand fulfilment has also been the big sale period on the e-commerce portals like Flipkart and Amazon; both companies reported significantly higher sales than year ago for almost all product categories. Reports from recruitment firms also point to a mini revival in hiring. It may be too early to jump to conclusions as seen from other countries that times of unlock can and may lead to second wave of the pandemic hitting the market and a chance of future lockdowns.
Phase 5: Back to normal phase: First, there is a need to define what is normal. Typically, a historic growth rate of between 5 and 10 % for the industry (as a whole) on an ongoing basis should be considered normal assuming the GDP growth rate for the country runs between 3 % and 8 %. Now, one could argue that there are some categories and companies that are already clocking such growth rates (and more) during this financial year; and therefore, for these categories one could safely say that normalcy has been achieved. However, for others in the industry, it is difficult to predict what would be the new normalcy and when that level will be achieved. At this stage of the crisis, there are multiple factors at play that could impact return to normalcy.
For one, the second and third waves of infection rates are already hitting American and European countries and also in some Indian cities. It is not improbable that one sees similar spikes across India especially after the recent hectic Diwali season where social distancing norms may have been compromised.
Second, there are two companies that have announced highly effective vaccinations against COVID-19. But it may take longer for these vaccines to be distributed and administered across a large part of the Indian population and this may delay the return to normalcy.
Third and most importantly, there is evidence that extended periods of lockdown have negatively impacted the penetration and consumption of many FMCG categories and the jury is still out on whether and when we will return to pre-COVID-19 levels of demand for these categories. However, there could be a temporary spike in sales in the April till September 2021 (versus same period in 2020) for companies that had witnessed dramatic fall in sales either due to the demand or supply disruptions during the lockdown this year. So, it would be unwise to predict one rigid timeline for the return to normalcy for the entire industry but see the new norm emerging as time passes.
It is very clear that the COVID-19 has wreaked havoc on the Indian FMCG industry (and the related ecosystem of agencies, media channels, suppliers, employees etc.) in 2020. But everyone hopes that the strong demographic power of the country, rising incomes and higher GDP growth rates expected in coming years will certainly bring that new post COVID-19 normalcy sooner than later.
The author of this article is the Managing Director of Nivea India; the views expressed in this article are his own and do not represent the views of his employer.
