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How are Indian FMCG Companies Coping with the Coronavirus Outbreak?

Jun 12, 2020 6:57 AM 4 min read
Editorial

India’s oldest and perhaps most prominent biscuit brand Parle-G recorded its highest sales ever during the COVID-19-induced lockdown in April and May.

#ParleG is an Emotion

Parle Products reported an impressive 5% market share gain in the hyper competitive biscuit segment, propelled by pandemic stockpiling of Parle-G biscuits by people as well as Government agencies and NGOs working to distribute food relief packages to people.

A silver lining for the Fast-Moving Consumer Goods (FMCG) sector? Well, on a closer look, the gains made by Parle Products seem like an outlier.

As for the rest, the ₹4.3L cr-worth FMCG sector in India witnessed a sharp 34% drop in sales in April, primarily owing to restrictions in mobility and supply side challenges arising largely from the nation-wide lockdown. This comes after the sector registered a fairly damp single-digit year-over-year growth in the first quarter, according to market insights firm Nielsen.

Traditional trade i.e. Via individual retail stores with localised inventory, which contributes 87% of sales to the overall market, saw a bigger drop of 38% in April. The decline was on account of lower sales in channels such as grocers, chemists, neighbourhood shops and cosmetics stores, again, directly resulting from the nationwide lockdown.

Supply chains have also been hit as distributors, wholesalers and direct sales staff have been paralysed by restricted mobility and understaffed operations.

Modern trade i.e. Via supermarkets and franchise chain systems, on the other hand, which contributes 10% in terms of sales to the overall market, slowed to 5% in April vs 26% growth in March.

Short-Lived Glory of India's FMCG Sector?

The near-term outlook for FMCG however stays "extremely uncertain” as the COVID-19 outbreak had a "terrible impact" and the situation remains volatile with the trajectory of the coronavirus undetermined, noted Hindustan Unilever Limited (HUL) Chairman and Managing Director Sanjiv Mehta.

 

FMCG stocks in India 2020

Investors are naturally sitting on the fence, considering almost half most of the listed FMCG stocks trade at levels higher than where they were 6 months ago, and others trade lower.

HUL - India’s largest consumer company, which owns popular brands like Lux, Lifebuoy, Surf Excel, Vaseline, Brooke Bond, and Lakme also added that the pandemic has impacted consumer behaviour and demand patterns.

2-Minute Maggi

This could perhaps explain why Nestle India beat Street estimates to outshine its peers. Nestle India posted 10.7% growth in net sales in the March quarter - its highest growth in three quarters, owing to its presence in the staple categories of dairy, ketchup, confectionery, and our beloved Maggi.

HUL, on the other hand, is yet to make a mark with its food and refreshment portfolio, which contributes merely around one-fifth of its total revenues and has 17% Ebitda margin. It’s greater push and focus on the segment is evident from its recent acquisition of top nutrition brand Horlicks and other GSK Consumer Healthcare brands such as Boost and Maltova.

 

India's FMCG Sector Trying to Stay Afloat During the COVID Crisis

 

India's FMCG Sector Trying to Stay Afloat During the COVID Crisis

Moving on, we have a look at how FMCG companies are trying to remain afloat and how many of them have swiftly responded to unprecedented challenges, with innovative strategies.

The lockdown has led to multiple innovative tie-ups between ecommerce and food delivery platforms and FMCG companies to ensure last mile delivery, leading to accelerated push towards online-offline retail (shucks another one for Mr. Ambani).

BigBasket and Spencer’s Retail have partnered with Uber to deliver essential goods and groceries. Uber has also tied-up with Medlife to deliver medicines in select cities. A win-win for both the retailers as well as the cab-aggregators.

ITC has joined hands with Dominos, Swiggy and Zomato to deliver ITC’s essential items. It has also partnered with community centric apps such as Apna Complex, My gate, No Broker and Azgo.

Godrej Consumer Products Ltd, has tied up with Zomato and Dunzo along with B2B supply chain start-up Shop Kirana and car rental company Zoomcar.

Tata Consumer Products has listed its distributors on Flipkart.

Marico Ltd has launched Saffola Store on Swiggy and Zomato. It has also commenced tele-servicing and introduced an app for retailers.

MTR Foods has enhanced its existing e-commerce partnerships, besides tied up with Swiggy, Zomato and even Cure.fit.

MTR has also tied up with Shell to ensure that their products are available across Shell’s petrol pumps in South India. It has also enhanced direct deliveries of orders placed through their own website to nearly 15,000 pin codes during the lockdown.

Wider Focus and The Way Ahead

The focus has not just been on enhancing B2C deliveries but also on efficient B2B deliveries to distributors and retailers.

"We have partnered with national players like Delhivery, Shadowfax and Lalamove to ensure products are delivered from factories to depots and thereafter to distributors. Additionally, the services of these logistics partners have been extended to the distributors so as to ensure movement of goods to the final retailers," said Sanjay Mishra, COO-India Sales and Bangladesh Business, Marico Ltd.

And as per reports, most FMCG companies plan to continue the partnership even after the lockdown - a classic example of a stop-gap arrangement becoming a blockbuster strategy?

FIN.

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