Impact of COVID-19 on the Indian FMCG Sector

The COVID-19 crises have crippled down global markets, and consequently, the manufacturing industry has been forced to manage resources in the most optimal manner across the globe. In India, one of the most affected players in the FMCG sector, which is the fourth largest sector in the national economy. There are three major segments within it: food and beverages (19%); healthcare (31%) and household and personal care (50%). The sector has grown from 2,20,852.4 crore rupees ($31.6billion) in 2011 to 3,68,669.75 crore rupees ($52.75billion) in the 2017-2018 financial year. It was further expected to grow at a Compound Annual Growth Rate (CAGR) of 27.86% to achieve 7,24,759.3 crore rupees ($103.7billion) by 2020. That is 9-10% of growth in 2020.

However, the COVID-19 has had a tremendous impact on this persistent growth of FMCG-related products, bringing down the demand and supply ratio; reduction of raw material dealers, and linear distribution and low growth predictions on the supply chain and logistics end. Several FMCG companies have decided to produce only essential products during this pandemic, in the hope of overcoming the economic shock. The sector, with respect to essential products, is experiencing what has been named as ‘supply shock’, which is making the production complex, expensive, and nearly impossible in some cases. Hence, companies have been instructed to follow the ‘Make To Stock’ policy that is used by businesses to match the inventory with anticipated consumer demand, along with the ‘push strategy’. 

The Lockdown period in India, now extended till May 3rd, 2020, has forced the big manufacturing companies i.e Hindustan Unilever, GCPL, ITC & Wipro, to ramp-up their production and distribution of hygienic products as demand keeps surging. The government should ideally permit the production to continue in their factories, creating buffer stocks of inventory and also managing staff movement around their plants. Due to the shortage of raw material supply, transportation, and man-power, several companies are not able to produce at their full capacity. Since the demand for these products is high, but production has gone down by 50% during this pandemic, India is set to face grave difficulties, considering it has an extremely complex FMCG distribution channel which makes supply and demand of products a herculean task during the lockdown.

On a positive note, rural areas remain functioning with relative normality with the limitations of lack of E-Commerce distribution used to deliver essential products. The only solution would be to restart E-Commerce operations which support social distancing, generate revenue and benefit all the players. 

Similarly, the stock market has witnessed a brutal sell-off owing to fear of serious economic dislocations, which will take a certain amount of time and buyer’s confidence to repair the damage created.

FMCG will have to be more resilient than other sectors, bouncing back with effectiveness. After the lockdown ends, the situation will take a considerable amount of time to be back on track. The Government of India is expected to cross-check the market products and prices, ensuring the same conditions or normality and open market remain available.

 

This article is co-authored by Dr. Raul Villamarin Rodriguez, Ganapuram Vamshidhar Reddy and Madagoni Rakesh, Woxsen School of Business