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COVID-19 impact | Earnings reports paint a bleak picture of discretionary product consumption

Supply-chain issues have already started to crop up due to arbitrary lockdown across the country, where restrictions vary from state to state and at times even district to district.

May 03, 2021 / 09:14 PM IST
As the second wave of the Covid-19 pandemic engulfs the country, consumer sentiment has taken a hit, yet again.

As the second wave of the Covid-19 pandemic engulfs the country, consumer sentiment has taken a hit, yet again.

As the second wave of the COVID-19 pandemic engulfs the country, consumer sentiment has taken a hit, yet again. The retail and FMCG companies while reporting their fourth-quarter earnings cautioned that their businesses, which had seen recovery with the onset of 2021, would be impacted again at least for the first quarter of FY22, in the wake of lockdowns across the country.

“A sharp drop is seen in revenues following temporary partial lockdowns in various states, along with local restrictions on operating hours and days from mid-March (due to the second COVID wave),” said Noel N Tata, Chairman, Trent Limited.

According to Tata, customer demand should rebound strongly possibly in the second quarter. Trent is the retail brand of Tata Group and operates stores across formats including fashion retail chain Westside and Zudio and food and grocery store Star.

Reliance Retail, the retail arm of Reliance Industries, which runs chains such Reliance Fresh, SMART, Reliance Digital, Trends, and hyperlocal platform JioMart, also said that the second wave has adversely impacted its business since the second wave.

Though the FMCG majors such as HUL, Britannia, and Nestle, were slightly more optimistic, they also expect an impact on the business going ahead.

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“Though there might be some impact on the demand due to the mobility issues, our factories are running and the supply chain is still operating,” said Sanjiv Mehta, CMD, HUL.

Demand for discretionary dips

Discretionary products are already witnessing a decline in demand. According to Reliance Retail, only 40-50 percent of its electronics and fashion and lifestyle stores are operational at the moment, while footfalls have dropped to 35-40 percent of the pre-COVID levels.

The company while announcing its results for the fourth quarter reported that the business is confined to essential items due to lockdown and operating limitations in several states, while sentiment, too, has nosedived and consumers have cut down on non-essential purchases.

Deloitte’s global consumer tracker, too, indicated a cautious approach of the consumer towards consumption of non-essential products.

“About 48 percent of the consumers showed an intent to spend on healthcare, 33 percent towards medicines, 42 percent towards internet, 47 percent towards groceries, and 44 percent towards household goods, indicating that consumers want to focus on non-discretionary spends in the time of crisis,” revealed the findings of the recent 30-day consumer survey.

Essentials hold up, for now

The fast-moving consumer goods (FMCG) companies, however, reported that they have not witnessed any widespread impact of the second wave so far and HUL MD went as far as to say that they do not believe the impact will be as bad as last year.

Despite having a major presence in the essentials category, FMCG companies had seen their sales slump last year, riddled with supply chain challenges as the government imposed a nationwide lockdown. Closure of production facilities and mass exodus of the migrant workers had added to their woes. According to market research firm Nielsen, FMCG reported a 19 percent contraction in the second quarter (Q2) of the calendar year 2020.

This time around the companies have taken several measures to avoid a repeat of the last year.

“ITC has taken all necessary steps to ensure enhanced availability of products for consumers across all channels. Throughout the pandemic, we have developed strong operating policies and agile organisational structures for dealing with all types of market constraints and volatility,” said an ITC spokesperson.

Supply-chain issues have already started to crop up due to arbitrary lockdown across the country, where restrictions vary from state to state and at times even district to district.

“It’s unfortunate because you build your distribution and then something like this happens and you have no choice but to tread on the side of caution as far as your employees are concerned. This wave just seems to be a very, very vicious wave of COVID," said Varun Berry, managing director, Britannia Industries, addressing the company’s investors after reporting its fourth-quarter earnings last week.

Analysts, however, are of the view that since FMCG companies stock inventories with their distributors and retailers, they might have not felt the impact of the second wave, which has been stronger in the last 15 days.

“About 15-30 days' worth of stock of their products is available with distributors and retailers therefore FMCG companies have remained unaffected so far,” says Subhendu Roy, partner, consumer and retail practice Kearney.

The impact, he says, would be felt in May if the lockdowns are extended and as the supplies with distributors and retailers dry out.

Back in trend

Experts predict that as the country grapples with the second wave of the COVID-19 pandemic, the larger consumption trends that emerged last year would make a comeback.

“We have witnessed a heightened need for convenience whether it is through getting groceries delivered online or the surge in demand for the packaged foods,” says Nidhi Sinha, content head, Mintel India.

She predicts the rising consciousness towards health, which led to the launch of several immunity-boosting, healthy products across FMCG categories, would remain true for this year too.

Disclaimer: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.
Devika Singh
first published: May 3, 2021 09:13 pm

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