Covid 2.0 may hit FMCG cos growth

The one constant comfort for fast moving consumer goods (FMCG) companies throughout 2020 – demand from rural and small-town India – is now under threat.Covid 2.0 is spreading rapidly in non-metro areas and companies apprehend slowing growth and consumers postponing purchases. To mitigate the impact, said FMCG executives, distribution and trade channels are being taken further into the hinterlands — a strategy that will also address any lockdown-induced disruptions in other areas.“We are keeping our supply chain and systems largely stress-tested,” said Saugata Gupta, managing director of edible oils maker Marico, which derives about 34% of its sales from rural India.Purchases may be Deferred“Smaller players will get more impacted,” said Gupta of Marico.“We are further driving our distribution and supply channels into the hinterland to ensure there are no disruptions,” said Mayank Shah, senior category head at Parle Products, which relies on rural markets for more than half of its annual sales.“Consumers in rural and tier II-III markets may postpone demand for certain categories, considering lockdowns and sentiment,” said Manoj Menon, head of research and consumer analyst at ICICI Securities.Rural demand grew at twice the pace of that from cities all through last year. For example, in the December 2020 quarter, demand from large cities (with over a million population) grew 0.8% year-on-year, while rural markets raced ahead with 14.2% y-o-y growth.Locked Down“We are quite concerned. The situation is still fluid and we are closely observing the developments,” said Subhashis Basu, chief operating officer of Indore-based packaged foods company Prataap Snacks. On Saturday, Madhya Pradesh announced an extension of the lockdown in Indore for another week.Last mile links can also be an issue as lockdown and restrictions — especially in Maharashtra — have already started impacting retail sales. For instance, Solapur and Pune are seeing double-digit drop in sales month-on-month, according a report by Bizom, a sales automation firm that transacts with 7.5 million retail stores.“With lockdowns likely for longer durations, we can expect Maharashtra, which is India’s biggest state in terms of kirana sales and number of outlets, to have a subdued April,” said Akshay D’Souza, chief marketing officer at Mobisy Technologies, which owns Bizom.Hope AbidesSome other executives said they are hopeful that growth in small towns and rural markets will even out in April-June.Gujarat Cooperative Milk Marketing Federation (GCMMF), which owns Amul, said there is no visible impact on rural consumption yet, except that growth in a few categories has tapered off a bit.“We are still growing at two to three times compared to last year, due to mass migration that happened a year ago… Unless there is a wide scale government curfew, it will not affect consumption,” said GCMMF managing director RS Sodhi.A bumper harvest will also shore up demand, said Adani Wilmar chief executive Angshu Mallick, adding that monsoon will be critical, clarity on which will come only next month.

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