Coronavirus has had a great impact on the world. Everything we believed and did begin to change as soon as the coronavirus outbreak was declared a pandemic. Within a few days, the entire country went into lockdown and life as we knew it changed. No longer was it acceptable or safe to meet and interact with people outside. It was not safe to go out and party anymore. It was no longer safe to go shopping, watch a movie at the theatre or eat at your favourite restaurant. Life as we know it changed completely.
Although lockdown prohibited many sectors from opening up, FMCG was largely exempted from it as they are considered essential services. FMCG consists of fast-moving consumer goods like soaps, oil, toothpaste, shampoos, drinking water, cigarettes etc, which we use in our daily life. But that does not mean that FMCG sector was not affected by the lockdown. FMCG products can be broadly divided into two, given the condition: Essential and discretionary. Those products which were deemed essential were prioritized but those deemed discretionary took a back seat. The COVID-19 pandemic has resulted in a slight shift in the paradigm of what we consider to be essentials; hygiene products have entered this category, whereas industries like apparel have shifted to discretionary (source- Euromonitor).
How coronavirus impacted FMCG sales
To understand how coronavirus impacted FMCG sales, we need to take a closer look at how FMCG industry functions. FMCG goods are produced by manufacturers, they could either be the company-owned manufacturing units or a contract manufacturer. These manufactured goods are then taken to wholesalers, who then gives it to distributors. The distributors give products to different retail shops. These retail shops are the Kirana stores that are near our houses. Alternatively, manufacturers can directly sell the products to wholesalers, who in turn sell it to the supermarket chains like Big Bazaar, Spencer, Dmart etc. The supply chain plays a very crucial role in the distribution of FMCG products. If the supply chain is disrupted, then it impacts the sales of FMCG goods.
During the lockdown, the demand was there for FMCG goods. Due to lockdown, there was no transportation or few transportations available. As a result, the supply chain broke down. FMCG goods were not able to reach retailers or supermarket chains. Hence we saw many stock-outs happening throughout the country. While FMCG sales fell across channels – traditional trade, modern trade, e-commerce and cash and carry stores, traditional trade witnessed the sharpest decline followed by modern trade, cash and carry stores and e-commerce. Grocery essentials such as atta, rice, pulses, oil, ghee, personal hygiene items, laundry products, hand sanitizers, salty snacks were some of the products which consumers found out of stock(source-Economic times). Stockout is as detrimental to FMCG companies as lost sales.
Image credit – Economics Times
The coronavirus outbreak created problems for FMCG companies. At the same time, it created opportunities for some FMCG companies. Those who had a hygiene and cleaning products portfolio benefitted by the increased sales. These companies had an early mover advantage in this domain. Their sanitisers, disinfectants, masks, gloves etc flew out of the stores. Others sensing an opportunity started producing such hygiene products. Pretty soon, there was a flood of companies producing sanitisers, disinfectants etc. There was a surge in demand for these products initially but now the demand has stabilised as many FMCG companies started supplying the products. Many FMCG companies tied up with delivery start-ups for home delivery of their products. Fear of going outside and risk of contagion helped increase door to door deliveries.
Image credit- Economics Times
As the country moves out of the lockdown and into the various phases of unlocking, there are both opportunities and challenges for FMCG companies. Companies which have a major portfolio in discretionary products like cigarettes, deodorants, perfumes etc will see a slowdown in sales as people are conscious about spending on non-essential products. SO companies like ITC, which is majorly in cigarettes and derive 80% of their profits from cigarettes will see their profit declining. On the other hand, their portfolio of personal hygiene products like soaps, hand wash, disinfectant etc. will see greater demand. But given the volume of cigarettes sales vs volume of personal hygiene sales, ITC will be affected adversely. Their cigarette sales volume is much higher than their personal hygiene portfolio. Similar will be the case for other FMCG companies as well.
Those companies which had more portfolio of products consisting of essential products, saw their products getting stocked out. But after supply chain networks stabilised and manufacturing capacity improved, they saw demand coming in. though it is still a far cry from previous pre-pandemic levels. As India unlocks further and manufacturing capacity, as well as supply chain networks, improve, FMCG companies will breathe a little easy.
Some companies started adding products like sanitizers, hand wash etc. which were earlier not part of their portfolio. Some new companies were also established which sold these products, catering to the increased demand.
After the lockdown rules were relaxed, e-commerce companies started getting more traction in the FMCG space. FMCG products usually form a very small part of their total sales. E-commerce companies focusing on grocery sales also recorded an initial spike in sales due to people being confined to their homes, but many later had to halt operations due to logistics issues. E-commerce is expected to benefit over the long run, with a greater number of consumers developing an online grocery shopping habit.
Image credit- Economics Times
Consistent efforts to increase awareness of washing hands and disinfecting surfaces has resulted in consumers overstocking these products, leading to stock outages in the short run while benefitting these categories in the long run with supply chain recovery. Floor cleaners and toilet cleaners were some of the few categories that exhibited stronger growth compared to the pre-COVID-19 period, on the back of stockpiling and frequent purchasing, including from first-time consumers. These categories will likely continue to witness higher usage post-COVID-19 on the back of habit persistence, accelerating home care growth in the world’s fifth-largest home care market (source- Euromonitor).
FMCG companies supplying to hotels, restaurants have taken a hit due to the complete shutdown of the hospitality business. No adequate risk management measures could have anticipated such outcomes and thus companies got caught off guard. It is very difficult for the hospitality industry to come back to normal again anytime soon. The FMCG products demand from these sectors has taken a huge hit.
The way forward for FMCG companies
Given that the coronavirus outbreak is far from over in this country as well as in other parts of the world, FMCG companies need to come up with some strategies to deal with the coronavirus impact on their business. Hoping that the virus will recede and things will be back to normal may not be anytime soon. So companies need to start planning a way out of this pandemic.
Adjusting product portfolio
The first thing FMCG companies need to do is adjust their portfolio to make it more balanced. Discretionary spends on consumers will be subdued. Due to the virus wreaking havoc on our work life and many companies shutting down and laying people off, many would-be afraid that they might be laid off. As such people will be very wary of purchasing a luxury or discretionary products in the short to medium term. Demand will again kick in once the fear of job loss and the virus recede. Till then FMCG companies need to adjust their portfolio to include more goods in then essential categories and less in the discretionary category. A successful transition is a key to the survival of the company. Those who have more of their portfolio in essential products are going to benefit now.
Adjusting client portfolio
If your company mainly used to cater to corporate clients in the hospitality sector, your business will be impacted. The hospitality sector will be perhaps the last sector to come out of the pandemic. Their revenues are hit and demand from this sector is now negligible. Most travellers will put off travel for now and only take essential travel requirements. So if your company is mainly into the hospitality sector, it is time to look for clients in other sectors. Easier said than done. It will be difficult to get hold of new clients in the backdrop of the pandemic. But if your company has a good supply chain network, great customer service, it is possible to get clients even in these challenging times.
Building Brands through advertisements
Now is a good time to build your brands through advertisements, especially through digital marketing. Due to many companies facing financial trouble, advertisements by brands have reduced. This has resulted in lower advertising prices by both the advertising platforms as well as lower prices by advertising firms. Facebook has cut advertisement rates by 20%.
With traditional below the line marketing no longer a viable option for companies during this outbreak, companies are looking towards digital marketing. As more and more people stay glued to their phones and their laptops while staying at home, it has become important to advertise digitally. Advertising digitally has additional benefits such as better tracking of ROI and easy Call to Action, Customers can be persuaded to buy the product instantly after seeing the ad, which is not possible in traditional marketing. However, this won’t be a cakewalk. More and more brands are coming online to advertise. You need to be very specific with your advertising message and your brand building strategies. Enlisting the help of a digital marketing agency or digital marketer is important rather than trying to do it yourself.
It is still early to fully understand how coronavirus will impact FMCG sales in the medium to long term. There may be some customer behaviour and customer preference changes too in the long run which will have a bigger impact on the industry. So far, the impact on FMCG sales was not that bad as in other sectors like hospitality sector. The initial dip and the subsequent high in demand are what we saw happening in the past few months. Companies need to become more dynamic in adjusting their client and product portfolio depending on market needs.
In our posts on FMCG companies, we will keep you updated on the latest impacts and trends, so keep reading our blogs and stay updated on the latest in the FMCG space. To read more such content, keep checking our resource centre.