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Is Third Wave Another Roadblock For FMCG Sector?

According to the experts, the trends show that the rate of hospitalisation is limited in the third wave of Coronavirus and this could play an important role in consumers continuing their purchases normally.

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FMCG sectors to show an upward growth if planned effectively during the Indian festive season

With daily COVID-19 cases rising in India with each passing day, the fast-moving consumer goods (FMCG) sector is staring at a tricky roadblock in the path of recovery, yet again. Despite the low production, companies are prepping to make sure last-mile delivery of stocks to retailers.

During the earlier waves, many FMCG companies were caught off-guard which resulted in the loss of revenue. As per reports, the demand for FMCG goods like food products and essentials increased, however, they could not supply because of low production.

"We struggled with supply in the first wave mainly due to two key reasons- reverse migration of workers and inadequately stocked raw materials. Both of these got fixed in the second wave where the challenges of raw materials were addressed by brands in the form of focussing on top-selling SKUs only, rather than entire range selling at stores. In the third wave, we see that brands have maintained a steady supply of the entire range thus far and there is a negligible disruption in the availability of products," said Akshay D'Souza, Chief of Growth and Insights at Bizom, a Retail Intelligence Platform.

In August last year, the daily grocery consumption and essentials in rural areas surpassed cities in July, as compared to the trend of June. After two years, urban growth was more than rural areas for the first time in approximately two years in June. However, as the COVID-19 guidelines are easing and good monsoon rain, rural growth is likely to make a comeback and be in line with urban growth going forward.

“Since the onset of the pandemic, we have seen consumers becoming increasingly health-conscious which made it imperative to rework product compositions to include more natural and eco-friendly ingredients. Consumers also are digitally more active than ever before. Brands are hence becoming digitally-first in their approach to cater to this evolving consumer," said CEO of Allana Consumer Products, Milind Pingle. 

Talking about demand, in both the earlier COVID-19 waves, the sector witnessed large-scale demand shifts from out of home consumption to 'at home consumption. D'Souza explained that this was mainly on account of large-scale lockdowns which led to an increase in ready-to-cook consumption, which saw a 400 basis points increase in contribution. Also, consumers started looking to convenience cooking with blended spices showing a spike of 500 basis points and 350 basis points in both waves, respectively. 

"This has ended up being a blessing for the players in this category as it means better margins for the sector. In the third wave, we can definitely expect an increase in the contribution of ready to cook and blended spices. However, this increase in contribution will be lower than the previous waves as lockdowns in this third wave are now confined to micro containment rather than large-scale, leading to a lesser shift to at-home consumption," added D'Souza. 

Pingle added that there also has been a shift in the buying behaviour during the pandemic that resulted in quicker adoption of e-commerce. "The shift means that brands are trying to build a robust e-commerce capability. Many brands also are accelerating the development of direct-to-consumer channels to cater to consumers by offering customised experiences. If the e-commerce infrastructure was nascent at the onset of the pandemic for a lot of organisations, it has been streamlined and made robust to cater to the third wave," said Pingle. 

D'Souza also cited data and said in the first wave, we saw a drop in the Kirana universe by almost 70 per cent followed by a 25-30 per cent drop in the outlet universe. "In the second wave despite having 10 times higher maximum daily infections. Current early indications show only a single-digit drop thus far in the Kirana outlet count indicating that there could be a very small impact on the distribution network across the country," he said. 

Future outlook: 

Talking about the way ahead D'Souza mentioned that FMCG brands will continue to focus on direct distribution in rural areas as they rush in to cover more villages rapidly. This shift from wholesaling to direct distribution is expected to continue as brands look to ensure steady consumer demand for their products.

Pingle mentioned that with the impact of the new omicron wave yet to be fully established, we have ensured standard operating measures to facilitate efficient operations. "We have realised that the only constant changes. In order to flourish, we must accelerate innovation across every business aspect – product development, marketing, manufacturing, supply chain in this new normal. This will enable businesses to combat challenges and continue creating value for customers and the economy," said Pingle. 

"We also see larger players looking to build independent marketplaces to address the challenges being posed by eB2B marketplace players like Jio and Udaan. Overall we do see the economic impact on FMCG of the third wave will be significantly lesser than the earlier waves and the recovery to be much faster than the two months of disruption we saw in the second wave," said D'Souza. 

Meanwhile, according to the experts, the trends show that the rate of hospitalisation is limited in the third wave of Coronavirus and this could play an important role in consumers continuing their purchases normally.

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fmcg sector india COVID-19 Omicron