The Covid-19 pandemic is likely to trigger a “complete reset button” among FMCG companies, particularly those in the food business. The possibility of a massive shift in consumer behaviour, driven largely by an increased adoption of technology and a rise in home consumption of products, are likely to be the key drivers of change in the industry.
According to Mayank Jalan, CMD, Keventer Agro, the FMCG industry has been largely driven by “single serve on the go consumption” but that is something which is likely to undergo a change following a shift in consumer’s buying pattern.
“Post this lockdown, it is probably not going to be life as usual. It is actually not going to be like a restart, but more like a reset, in every aspect. While the industry may be surviving post this kind of a lockdown or a pandemic, but whether we will be actually prospering, or will we be having the kind of disposable income to go out and spend is something that needs to be seen. These are questions which are unanswered as of now. It is a complete reset button which FMCG companies, particularly those in the food business will have to look into,” Jalan told BusinessLine .
Changing consumer behaviour
While it is still early to estimate the impact of the current crisis on the industry, it is likely that e-commerce and home delivery would take precedence in the buying pattern of consumers moving forward. This is also likely to prompt FMCG companies, which have typically been catering to on the go customers, to focus more on home consumption.
Apart from this, consumers who have been largely dependent on buying vegetables and meat from unorganised markets are likely to move towards organised players, where quality and hygiene parameters are adhered to.
“You have this kind of pandemic which has originated from an unorganised wet market and that too in a highly controlled environment like China. More than 90 per cent of fresh vegetables or meat in India is currently sold through wet markets where hygiene is a big issue. So, a shift to organised players from unorganised market is likely to be fuelled moving forward,” Jalan said.
Whether this shift in consumer buying pattern would lead to increased consumption of frozen food and vegetables is something that would be seen in the next 6-12 months.
Another important shift that is likely to happen is the increased acceptance and demand for food centred around health and wellness. While in India there was demand for health and wellness products, it was more latent and limited to high-end urban population.
“Health and wellness is at the forefront of everybody’s mind today…..so it is likely to lead to a situation where consumers will demand products which are hygienic and healthy. This in turn might lead FMCG companies evolving a portfolio of products built around health, immunity and protection,” he said.
Rural consumption – a concern
While consumption in urban areas may pick up slowly in the coming months, the rural or semi-urban markets, which accounts for nearly 60-70 per cent of the country’s economy, remains to be a concern.
The urban population may be quick to respond to changes in food pattern focusing more on health and wellness and may also adopt technology for the delivery of products, however, the same may not happen in case of rural markets.
The harvesting of kharif crop and some of the plantation crops, like mango and tea, is likely to be impacted due to the ongoing crisis, and this in turn is likely to create an agrarian distress.
“If you start getting into the cycle where farmers and rural hinterland are not getting income, then the rural demand, which has been driving the FMCG industry over the last decade, may be impacted. Once the rural demand starts falling behind the curve, it takes incredibly long time for it to come back,” he observed.
‘Nimble and lean’ companies
Given the current circumstances, it is important for companies to be “nimble and lean” and take into account the changes that are likely to emerge on an ongoing basis.
Indian corporates usually work on a medium to long term plan and are not too adept to respond quickly to changes. However, the tackle the current situation, they need to put in very short term plans so as to be able to respond to the emerging situation, he pointed out.
“We (at Keventer Agro) generally work on two-to-three year plans, but now we are working on one week, four week and 12-week plan…taking one week at a time…trying to maintain cash flows, trying to ensure we are doing our best in the current circumstances. These are things which we have to do on an ongoing basis rather than wait for the lockdown to get over,” he said.
Keventer Agro, which is into pouch and UHT milk, beverages, frozen food and banana, which had recorded a growth of around 26 per cent between January to March 15, 2020, is set to report a degrowth following the lockdown. This is despite the fact that milk sales (both pouch and UHT) have been good.
“Though milk consumption in houses has increased, but 30-40 per cent of the consumption happens in hotels, restaurants, offices, institutions etc which are now shut. This has impacted sales,” he said.
However, the company has accelerated roll out of several technological initiatives including online delivery of products through Zomato, direct delivery to residential complexes and setting up store locators to know the availability of products across various outlets in a given area, in the last ten days. The company is also in the process of rolling out an e-commerce based subscription model in the next 15-30 days.
“As of now consumption is not up to mark, logistics issues have sorted out to a great extent but still I am not planning for any growth in the next two to three months. So for Q1 2021 we are not giving any direction but we will work on a weekly basis,” he said.
The company is planning to put in lot of investments on its UHT milk business moving forward. It is also planning to launch lassi and milkshake during this summer (once the lockdown is over). It is also planning to give a “push” to the frozen food business, which has seen an uptick in consumption.