What has been the impact of the lockdown on the FMCG sector?

The FMCG sector in India is the fourth-largest sector in the Indian economy. It is divided into three main segments: health care (~30%), house and personal care (~50%), and food and beverage (~20%). In a pre-COVID world, the two significant structural changes that happened in the FMCG were demonetization in November 2016 and GST in July 2017. While arguably demonetization slowed FMCG growth, the implementation of GST turned out to be a tailwind. The FMCG sector grew dramatically. The development was mainly due to disruption for local players in the aftermath of GST. The local players, who were not well-positioned to operate/adapt with GST, started exiting the market. As they began to exit the market, branded players in the category started picking up a lot of volumes. For two years, the Indian FMCG industry enjoyed double-digit growth. But the slowdown for FMCG had already started before COVID. A slowdown started in Q3 2019. So, FMCG companies were already focusing on cutting costs, improving the supply chain, and controlling margin erosion before COVID. In COVID, FMCG companies have learned to operate even more efficiently using technology and improved supply chain. These efficiencies that companies have realized can be helpful in the post-COVID world.

Impact of lockdown

Products that have higher consumption out of home constitute significant revenue share for many FMCG segments. It can hurt top-line growth. Commonly, products like ice-creams, alcoholic drinks, cigarettes, and other such items have high consumption at work, food joints, airports, railway stations, weddings, parties, etc. Due to the lockdown and a lot of restrictions and increased public awareness as lockdown is lifted partially, out of home consumption may remain low for the next few months. However, products like tea, coffee, noodles, atta, dairy, biscuits will remain in demand even as people stay at home. Some products like noodles, atta, dairy may have higher demand. Demand for personal hygiene and home care products is expected to rise further in the coming days due to the growing awareness among consumers in the wake of the pandemic.

Companies with a higher revenue share from essentials portfolio to benefit

A higher share of essentials in the portfolio will result in higher growth. If the revenue contribution from non-essential or discretionary items is higher, growth is likely to remain slow in Q2 and Q3 FY21. Food players are best placed, given the essential nature of their portfolios. Nestle and HUL stand out in this. HUL already declared Q1 FY21 results. 80% of its essential portfolio grew 6% y/y, while 15% of its discretionary portfolio declined 45% y/y. Of the home portfolio (5% of revenue) fell 69% y/y. According to consensus, a similar trend will be there for other companies as well. Parle was able to increase its market share by 5% during the lockdown. This was one of the highest in the last 4 decades.

Raw Material Cost/ Input Cost

Raw material costs may remain benign. Although crude prices are up from recent all-time lows, it is notably down on a y/y basis. If crude stays around these levels ($40–45 a barrel), the benefits would be visible for home and personal care players. Copra, palm oil and sugar prices had remained mostly stable whereas milk prices, which were at elevated levels before lockdown, dipped sharply in April. The prices of a few other items, such as tea are very high. In the recent tea auction (June–July), prices were 20–30% inflated compared to the same period last year.

Last-Mile Delivery Concept

From implementing strategies to scale-up or re-start operations at plants and warehouses, to striking unique online and offline partnerships for last-mile deliveries, FMCG companies have had to pull out all the stops to stay resilient. FMCG companies were grappling with supply chain and logistical challenges due to the countrywide lockdown imposed. To ease last-mile connectivity and distribution challenges, some FMCG majors have tied up with food delivery and hyper-local delivery apps. Marico, Godrej Consumer Products Ltd., and Britannia have tied up with Swiggy, Zomato, and Dunzo, respectively. ITC Foods has partnered with Domino’s Pizza, while Tata Consumer Products has joined hands with Flipkart.

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I think seriously affected sectors are Tour and Travel, Hotel Management after the impact of this COVID 19.

I m from hotel management.

Hi @Lorn

I think next 2 to 3 month everything comes normal. Because vaccine on testing process now, maybe it will release very soon for public use.

Let’s keep our fingers crossed. Also, keep watch on the speciality chemical stocks.

I agree. However, certain chains are looking at creative solutions to allow ‘work from anywhere’ option.