A New Normal

FMCG, online retail, telecom and pharma seem to be the obvious gainers of the Covid-19 pandemic

Illustration by Raj Verma Illustration by Raj Verma

Alcoholic beverage-maker Diageo India has announced that it would be making hand sanitisers as part of its pledge to fight the deadly Covid-19 virus. The company's Chief Strategy and Corporate Officer, Abanti Sankaranarayanan, in a LinkedIn post, says, "Five days ago, we at Diageo India didn't know anything about producing hand sanitisers.

Between yesterday and today, thanks to the tireless efforts of about 50 people in Diageo India, we produced the first batch of hand sanitiser packs at our Goa, Assam, Aurangabad and Hyderabad manufacturing units, as part of our pledge to produce over 300,000 litres of bulk hand sanitisers for public healthcare workers on the frontline." While one isn't sure whether Diageo would be looking at the hand-wash category as a long-term business proposition, hand sanitisers and handwash products have emerged as FMCG's new hero categories.

Once considered elitist and modern-trade categories, in the past month, hand sanitisers have become an essential part of a consumer's grocery basket. A recent Nielsen report says that the demand for handwash and sanitisers between February and March has gone up by an enormous 1,425 per cent.

The overall FMCG industry, which had been reeling under the effect of an acute slowdown, with growth rates as low as 6 per cent (according to Nielsen), experienced a 2 per cent jump in February, when the outbreak of COVID-19 happened in India.

Consumers started stockpiling not just sanitisers and handwashes, but also generously bought food and other essential items fearing a lockdown. Companies such as Amul saw a 20 per cent increase in demand.

In fact, there has been a sea change in consumption behaviour. Not only have consumers been hoarding essentials, they have taken to shopping online. Similarly, with malls and multiplexes shutting down, there has been an over 100 per cent growth in paid OTT subscriptions. TV viewership has also gone up by 8 per cent in March. With majority of entertainment consumption happening on the Internet, data consumption volumes of telecom operators have gone up 5-15 per cent.

The other obvious gainer of the COVID-19 outbreak is the pharmaceutical sector, which has seen a spike in sales of testing kits and some medicines, apart from of course masks and hand sanitisers.

FMCG Sees a Surge

While Diageo India may be the new kid on the block, stalwarts such as Hindustan Unilever (HUL), ITC and Godrej Consumer Products have left no stone unturned to rise to the new reality. All of them have ramped up their hygiene portfolio production by 15-20 per cent in the past few weeks. Sanjiv Mehta, Chairman and Managing Director, HUL, says, "In a crisis like this, companies have a big role to play. We are working closely with the governments and our partners to ensure that we overcome this global health crisis together."

According to Sunil Kataria, CEO (India & SAARC), Godrej Consumer Products, "We have ramped up production of our soaps, Godrej Protekt handwash and sanitisers in our units as well as through our vendor partner units. We are working closely with raw material and packaging material suppliers to facilitate uninterrupted supplies. Our teams are also working round-the-clock to ensure that adequate stocks are available across channels." Despite the country-wide lockdown, which has forced companies to shut several manufacturing facilities, these majors are working to meet the increased demand.

Experts see the contribution of the hygiene category increasing from just 1-2 per cent of an FMCG company's SKUs to 15-16 per cent of its portfolio. "Hygiene will get a new dimension post-COVID," says Raghu Vishwanath, MD of brand valuation company, Vertebrand.

Even food major Amul has ramped up its production by over 20 per cent in the last one month. "Consumers are not only hoarding out of panic, they are also buying more milk-based products because there is an advisory against consuming eggs and meat. People are substituting it with milk-based protein," says R.S. Sodhi, MD and Chairman, Amul. (Most FMCG companies, however, are finding it difficult to transport their products to the retailers.)

Apart from hygiene, industry experts also expect health food to become a category leader. "Eating healthy will gain further momentum as there is concern over building immunity," points out Kannan Sitaram, former Dabur COO and currently, Venture Partner, Fireside Ventures. He says that while some companies like ITC Foods already have 'better for you products' such as multigrain atta, other FMCG majors need to pull up their socks or they will lose business to start-ups.

Though FMCG sector gains seem imminent, industry experts don't expect a huge value growth as the increase is to a large extent coming from low-margin essential products.

Online Boom

While the COVID lockdown has led to supply chain and manpower challenges for most e-commerce platforms, during the early days, online grocery platforms such as BigBasket and Grofers saw close to 60 per cent surge in traffic, of which over 20 per cent were new users. But the current supply-chain clog (closed warehouses, little transport and delivery personnel being stopped) has put life in a disarray and all platforms have lakhs of pending orders. Ask Albinder Dhindsa, Co-Founder, Grofers, if online grocery will be part of the new normal, and he says, "I don't have the time to think about what the new norm will be in future. My priority now is to keep the supply chain alive and deliver to my consumers. Having said that, people are indeed seeing value in ordering online." Grofers has over two lakh pending orders ever since the COVID lockdown has begun.

Market experts agree that there is immense potential for online retail in the coming months, especially since the idea of social distancing is getting deeply ingrained in the minds of consumers. The next few months, according to angel investor and business strategist Lloyd Mathias, will see people revaluating their consumption. "People will revaluate alternative lifestyles. They will try to find out that instead of going to the mall or the neighbourhood store, how much they can make do by ordering online." Social distancing will also have an impact on the way business is done, he adds.

Easwaran P.S., Lead, Supply Chain Solutions, Deloitte India, agrees that there is a lot of opportunity for e-commerce retailers, but they have to keep up the quality and the delivery promise. "If they are able to hold on to delivery and quality promise, it's a great opportunity for them to captivate those customers. Many who were not in their ambit of influence, are there today. If they are able to captivate these people, the channel shift of customers will be more permanent."

However, one needs to keep in mind that over 70 per cent of Indian consumers live in rural India, where most e-commerce platforms don't have reach. Arvind Singhal, Chairman, Technopak Advisors, doesn't expect a significant change in consumer behaviour. He says many consumers are forced to use online platforms because they don't have a choice. "People who are already spending money on online are increasing spend but for it to become a habit it needs lot of investment. Moreover, online companies have to offer an assortment which is not available in local stores."

Sameer Shukla, West Market Leader, Nielsen South Asia, argues it is a question of what extent online will grow. "With mobile penetration really deep into the country, the internet infrastructure is quite decent. When the need and ask goes up, new players and new investment will come in." So, how are the good old neighbourhood kirana stores going to reinvent themselves to be part of the new normal? "The kiranas are the most efficient last-mile delivery points and they are not going to go anywhere," says Singhal. In fact, at a time when last-mile delivery is becoming an issue, online platforms such as Grofers are asking their kirana partners to deploy more manpower to deliver. All major retail companies, be it Reliance, Amazon or Flipkart, have ambitious kirana partnership programmes. While a large segment of the kiranas were skeptical about joining the biggies' networks, in the 'new normal' that may change.

Singhal expects the axe to fall more on the modern retail companies than kirana stores. "Modern retailers are more vulnerable. A traditional retailer's cost is low and he can bounce back. The big chains have high employee cost, real estate costs and supply chain right up to the warehouses. A prolonged lockdown will impact them immensely."

Vishwanath of Vertebrand says that post-COVID door deliveries are going to rise significantly as consumers would want to stay away from infection, and kirana stores are the fastest to deliver.

Eyes on Media

Consumers are not just shopping online, they are also watching content online. Prior to the COVID lockdown, the outliers of the media and entertainment industry were multiplexes, while platforms such as TV were losing out because of regulatory disadvantages and dwindling advertising revenues. With people forced to be inbound and multiplexes shutting down, the biggest gainers have been OTT platforms. Tarun Katial, CEO, ZEE5, claims subscription revenues have seen an over 100 per cent jump. "Our paid subscribers have increased dramatically. Demonetisation led to the surge of digital payments and COVID has led to the growth of digital videos."

The lockdown has also resulted in higher TV viewership. But this may not necessarily lead to incremental revenues, points out Jehil Thakkar, Partner (Media & Entertainment), Deloitte India. "Whether the increase in viewership will translate into higher revenue for broadcasters will depend on the economic health of the country. The mood currently is to conserve cash. Apart from basic brand-building advertising, I don't expect companies to spend much on advertising. Of course, the TV industry has a buffer due to subscription revenues."

Advantage Pharma

Experts have told us time and again that lockdown is crucial to contain the spread of the virus. But with increasing cases of infection, testing has become critical. This directly puts the spotlight on the key product in demand - testing kits.

Kit-makers are struggling to meet the demand and most private testing laboratories say their stock of testing kit will last for just a few days more. The options before the kit-makers today is either to ramp up production or supply kits in larger pack sizes. The Indian Council of Medical Research (ICMR) has approved four kits. These include three imported kits and one domestic. Mylab, the only domestic kit-maker, has been talking of an ability to ramp up capacity. It has said that their supplies will be in place from the week starting March 30. One lab in Hyderabad says it has been assured supplies by March 31.

German kit-maker Altona, for instance, is working on supplying pack sizes that can handle 4,800 tests as against 384 or 96 tests per kit. This could sharply improve the testing ability of labs even with fewer kits. Even 10 such kits would mean close to 50,000 tests. "We are in a hand to mouth situation right now and hoping for supplies of kits and PPEs (personal protection equipment) to increase," says Dr Arvind Lal, Chairman and MD of Delhi-based Dr Lal Pathlabs.

While there is a global hunt on to find the right medicine that is effective against COVID-19, research efforts, including those by the World Health Organisation (WHO) under its 'Solidarity project' as also by other research institutions and global innovator companies, are today largely around re-purposing of anti-malaria, anti-rheumatoid arthritis and anti-HIV medicines. Demand for some of these medicines has seen a sudden spurt in India. There are leading Indian companies such as like IPCA and Zydus Cadila that are making anti-rheumatoid arthritis drugs like hydroxychloroquine and anti-malaria medicine like chloroquine while companies like Cipla and Aurobindo are making anti-HIV medicines. However, in the recent past, perhaps driven by rumours, there have been reports of sudden spike in demand for some of these medicines even though these require proper prescription in case of any prophylactic use (to prevent the ailment). Despite this, demand for chloroquine, for instance, as one supplier pointed out, saw a 10-fold increase in February and double the demand for hydroxychloroquine.

The post-COVID 'new normal' is likely to bring in tectonic shifts which neither consumers nor consumer goods companies would have imagined. It's a wait and watch situation.

Inputs by Manu Kaushik

@AjitaShashidhar, @EKumarSharma