Covid-19: FMCG sector sees volume gains, but future uncertain

March 24, 1:30 pm, Andheri East, Mumbai: An otherwise busy neighbourhood in India’s financial capital bears a deserted look amid a lockdown imposed by the state government in wake of the Covid-19 pandemic. While most shops have their shutters down, two or three are still in business. One of them is a chemist and the two others are grocery stores, all dealing in essential services that are exempt from the shutdown.

In one of these stores, around a dozen shoppers frantically go around the half-empty shelves looking for whatever they can stock up on. Queries by the customers come thick and fast: Do you have milk? Curd? Tomatoes? Most of them are met with the standard response: “The stock is over and the truck with replenishment hasn’t arrived.”

The situation is much the same across other grocery stores in the city, which will remain open on alternate days. But despite continuing to cater to the essential needs of citizens, concerns loom large over the availability of essential items of daily use.

Vivek Gambhir, managing director and chief executive officer of Godrej Consumer Products Ltd (GCPL), the consumer goods arm of the Mumbai-based Godrej group, had cautioned as much. “Most of our factories and warehouses are operational at present. But there is a challenge in interstate transportation due to the lockdown in various states. Much of the raw materials, including packaging material, come into our factories from other states; and the finished products are also shipped to different states,” Gambhir told Fortune India. “Through the Confederation of Indian Industry and the Indian Beauty & Hygiene Association, we have asked the central government on clarity on norms governing interstate movement of goods and people, especially those involved in the manufacturing of essential items.”

There is enough supply in the system for the next one or two weeks, but if the shutdown extended beyond two weeks, shortages for some products were likely, Gambhir said. The situation has also been exacerbated since people had started hoarding essential items—especially in categories such as food and hygiene—over the last week in anticipation of a lockdown.

"In the last couple of days there has been a significant amount of difficulty in running the factories and transportation of goods. The government has rightly permitted food, vegetables, groceries and medicines to be excluded from the lockdown," a spokesperson for Hindustan Unilever (HUL) told Fortune India in an emailed response. "However, clear instructions need to be provided to the enforcement authorities across states so that these essential items and the supply chain around it, is allowed to function."

According to m.Paani, a startup that gives local retailers an online presence, over 75,000 grocery and daily goods retailers based in Mumbai, Delhi, and Pune alone had seen sales double in the last 15 days. With footfall gradually reducing at the stores due to the enforced quarantine, these shops registered on m.Paani saw a 2x surge in home deliveries, according to the startup, which was a part of Google’s Launchpad Studio.

R.S. Sodhi, managing director of Gujarat Cooperative Milk Marketing Federation (GCMMF), which markets dairy products under its brand ‘Amul’, had said earlier this week that there was no need to resort to panic buying of milk and other dairy products since GCMMF was ramping up supply and there would be no shortage. “Milk is an essential product and those involved in its procurement, production and distribution will continue to work as usual,”Sodhi had said in a video message posted on Twitter on March 21. “We have increased the supply of milk and dairy products by 15%-20% and can ramp up even more.”

Like Amul, other companies have also ramped up production to keep pace with demand. Gambhir said that GCPL had ramped up production of handwash and sanitisers at its end, as well as through third-party production and giving excess stock to distributors. The company, along with peers such as HUL, Reckitt Benckiser and ITC, has also slashed the prices of handwash and sanitisers and delayed a planned price hike, owing to a 30% increase in raw material costs, in soaps.

The HUL spokesperson added that while its priority was safety of its people, it was important for the company to fulfill the surge in demand from consumers for handwash, sanitizers, floor cleaners and hygiene products. "We are making every effort to produce and bring to the market these products in an uninterrupted manner," the HUL spokesperson said.

“Panic buying triggered stock-out in essentials such as staples, personal care, and hygiene products is advancing demand. This, we believe, will benefit HUL, GCPL, Nestle, Britannia, ITC, and Dabur,” said a research report by Edelweiss Securities dated March 20. “Moreover, the recent 47% plunge in crude prices is likely to aid margins of paint companies and Pidilite, further bolstered by logistics and packaging costs savings for most companies. Unfortunately, this pandemic is likely to push the already stressed rural areas (growing 0.5x urban) to the brink. Hence, we expect overall recovery to be delayed by at least two quarters (from H2FY21).”

Gambhir points out that the normal prescription for recovering from any economic slowdown is consumer spending, encouraged by the government. “But due to the current health concern, the government is asking people to stay at home, leading to a situation where we will shut down and then restart economic activity. This will have an impact on consumer demand as economic activity contracts,” he says. “The government will need to think hard on how to chalk out a strategy for economic recovery and it may need a massive fiscal stimulus, because if the shutdown lasts beyond two to three weeks, it can be quite a big economic shock.”