Uncertainty Returns

Uncertainty Returns

Industrialised states like Maharashtra, Gujarat and Delhi have been the most affected in the second Covid wave, resulting in large-scale migration of labour and posing a bumpy road ahead for businesses

Illustration by Raj Verma Illustration by Raj Verma

When Mumbai-based homemaker Vandana Mathur called her neighbourhood grocer to order essentials such as rice, oil and atta last week, she was told they were out of stock. Though the grocer assured her he would deliver the products at her doorstep by afternoon, Gupta was worried. "I started to wonder whether we were in for another round of lockdown-related supply crunch," she says. Later in the afternoon, Mathur's grocer did deliver her order as promised, but also warned her to be prepared for delays since supplies were taking longer than usual ever since Maharashtra announced a lockdown to break the chain of Covid-19 infections.

The second wave of Covid-19 is spreading like wildfire, forcing state governments to impose mini lockdowns. Like last year, retail (barring essentials) has already come to a grinding halt in many parts of the country with malls and high-street stores forced to pull down shutters. Ecommerce majors are allowed to deliver nothing but essentials, while restaurants can only do home deliveries. Construction activities have come to a halt as well. Some of India's most industrialised states like Maharashtra, Gujarat, Delhi and NCR, are, in fact, some of the most-affected regions, and local lockdowns could have an equally debilitating and disrupting effect on industries. So, is the Indian industry staring at another paralysis ahead?

Skepticism Engulfs

Captains of the industry are careful not to press the panic button right away though. With lockdowns announced only till May 1 in most states, many of them don't want to jump to conclusions. "Unlike last year, macroeconomic conditions are better because governments all over the world are spending a lot on infrastructure. It is too early to comment as the situation on the ground is evolving rapidly. Currently, we are operating according to plan and aim to run our operations safely and efficiently so we can service our customers and stakeholders to the maximum extent possible. We have been reviewing workforce requirement and optimising deployment to ensure safety," says T.V. Narendran, CEO and Managing Director, Tata Steel.

"Last time, we had no idea of what was going to happen. But, now we are clear about the time for recovery even if lockdown happens," adds Shekhar Bajaj, Chairman and Managing Director, Bajaj Electricals. However, if Covid numbers continue to shoot up, there would definitely be disruption in production and distribution activities, he warns. "We have enough inventory for April, but not beyond that."

R.C. Bhargava, Chairman, Maruti Suzuki, is against a lockdown as well. "It does not serve any purpose. It will hurt a lot of people and stopping legitimate economic activity is an over-reaction," he cautions.

Agrees Martin Schwenk, CEO and Managing Director, Mercedes Benz India. "A short-term localised lockdown will not create major disruptions; however, a prolonged and expanded lockdown will impact customer sentiment, in turn affecting the industry, the supply chain and the overall economy substantially."

The challenge this time is not so much from the business continuity or supply chain point of view, but more about ensuring the safety of teams. "This time there are no sudden shocks that have happened. A lot of support is there from governments in terms of classification of FMCG as essentials. However, the new wave is hitting closer home and what is worrying is that lot of people from our teams are falling sick," says Sunil Kataria, CEO, India and Saarc, Godrej Consumer Products.

Production & Supply Disruption

The first wave of Covid-19 brought production and supply chain mechanisms of most companies to an abrupt halt. When the government imposed curbs on the operations of factories and distributors, it led to large-scale migration of daily-wage labourers who suddenly didn't have a job. This time, companies may be better equipped to handle the black swan event, but state-imposed lockdowns have already begun to cause reverse migration of labourers. There is a 15-20 per cent dip in manpower availability, which is beginning to hit both manufacturing and supply chain operations.

Sridhar Gundaiah, Founder and CEO of rural distribution company StoreKing, says there is a delay in servicing orders by FMCG companies. "Earlier the window to deliver was 7-10 days, but in the last one month most companies are expecting us to place our orders at least 25 days prior. In fact, the problem is not as much in factories as much as it is in functions such as packaging and logistics," he explains.

Saugata Gupta, Managing Director and CEO, Marico, agrees that the system is significantly stretched because of the unprecedented surge of cases and the mini lockdowns. "We are managing to cope with it because of our agility and resilience. While ensuring the safety of our business partners, we have also re-initiated business continuity processes such as tele-calling retail outlets for demand capture and tie-ups with logistics partners for demand fulfilment. We have also implemented a robust tracking and communication mechanism with field teams and channel partners so that information can quickly flow to the right stakeholder and prompt decisions can be taken on ground."

Godrej Appliances is facing disruptions at its manufacturing facilities in Maharashtra due to manpower shortage. "Our Shirwal (near Satara) plant is operating with limited manpower to meet the demand for medical refrigerators, which comes under the essential category, while our Mohali plant is fully operational," says Kamal Nandi, Business Head and Vice president, Godrej Appliances. Trade partners have inventory for the next few weeks and the company is monitoring the ground situation to avoid stocks getting stuck mid-way due to lockdowns in certain states, he adds.

Manish Sharma, Chairman and CEO, Panasonic India, says if these lockdown-like conditions continue indefinitely, there could be a reason to worry about. "The current inventory will last for a month. We have finished goods in warehouses and about six-seven days of inventory in the factory. If the lockdown continues beyond that, there might be some disruption at the factory level."

Though pharmaceutical production is not impacted due to the current wave, there are signs of business disruptions happening in the supply chain, at the end of carton manufacturers, labels and vial manufacturers. "If that gets aggravated, there can be production issues going forward," says Arjun Juneja, Chief Operating Officer, Mankind Pharma.

India's second-largest carmaker, Hyundai Motor India, which is targeting a 20 per cent growth in passenger vehicle sales in the current fiscal, is worried that the lockdown would impact production. "When dealerships opened last year after the lockdown, the demand was strong. We were in fact not able to supply as many vehicles as our dealers wanted and the waiting period for some of our cars went up. So, the worry is not so much on the demand side. It is more about the virus spreading, and if we have to again shut down our factories or suffer from component supply constraints, then it might restrict us" says S. S. Kim, Managing Director and CEO, Hyundai Motor India.

The country's largest two-wheeler maker, Hero MotoCorp, is already feeling the pinch. It has recently announced that it would stop production at its factories for four days in a staggered manner between April 22 and May 1, as a precautionary measure to protect its workers. The move also stems from the fall in demand for vehicles that the company expects due to local shutdowns in various parts of the country. "Any production loss will be compensated during the remainder of the quarter. All plants will resume normal operations post this short shutdown period," the company said in a statement.

Dip In Demand

The greatest dilemma for consumer-facing companies last year was to create demand. As people got locked indoors, they didn't feel the need to buy clothes or shoes. Since job losses and pay cuts were rampant, the appetite to invest in a home or a car was limited. The retail industry plunged by over 70 per cent last year, while automobile sales fell 13.6 per cent, capping a second straight year of double-digit decline.

With the second wave of Covid-19 being more intense and lockdowns imposed in several states, the first signs of a dip in demand are already visible. "Consumer sentiment is obviously negative. Sales will be impacted, but it is still early to say by how much," says Rajesh Goel, Senior Vice president and Director, Sales and Marketing, Honda Cars India.

The dip in demand is forced, says an angry Kumar Rajagopalan, CEO, Retailers Association of India. The retail industry, which was among the worst hit in the first wave of Covid, had recorded an 88 per cent revival in March this year. However, with one state after the other resorting to lockdowns, it is back to where it was last year. "Despite not being crowded places, malls and high-street stores have been forced to shut down. This shows that the government doesn't care for formal retail. They don't even have a method to compensate the colossal losses of retailers. Retail is not even considered a MSME and there is absolutely no talk of relief," says Rajagopalan.

Demand will increase only if retail is allowed to function. Gautam Hari Singhania, Chairman and Managing Director, Raymond, urges governments in lockdown-hit states to open up retail. "Manufacturing without distribution has no value. In single-brand stores there is no congestion compared to vegetable markets or railway station," he adds. Last year's lockdown had pushed legacy retailers such as Raymond to invest in building an omni-channel infrastructure, however, with a large part of the retail sector being classified as non-essentials, they are unable to do home deliveries. That part of the revenue has also dried up.

Irrespective of state governments' diktat of closing down, the fear of contracting the virus has drastically reduced footfalls even in states where malls are allowed to be open, says Mukesh Kumar, Chairman, Shopping Centres Association of India and CEO, Infiniti Malls. "People are skeptical. Weekly footfalls have dropped by 40-45 per cent where weekend curfews, early closures and other restrictions are in place."

Mall owners across the country were hoping for a robust first quarter in FY22, which is certainly nowhere in sight. "If the second wave hadn't hit us, we would have been back to pre-Covid numbers," says Siddhartha Natu, Centre Head, DLF Promenade.

Though the hotel and restaurant industry may seem reasonably better off than traditional retail by virtue of being allowed to do home deliveries, for a fine-dining restaurant it contributes a miniscule amount to its overall revenue. For casual dining, it's in the range of 10-15 per cent. "For a fine-dining restaurant, delivery was always a minuscule part of the repertoire because fine-dining is all about experience. Even if we are allowed home-delivery, there are restrictions there as well since most cities have night curfew," explains Anurag Katriar, President, National Restaurants Association of India (NRAI).

The restaurant industry's sales have already dropped by 80 per cent. "Even though there was an uptick in demand from December to mid-February, the second wave will wipe out gains made during that short time. Most sales in restaurants happen at night and over the weekend. Current restrictions could mean the end of the road for a lot of restaurants," says Zorawar Kalra, Founder and Director, Massive Restaurants, which owns brands such as Farzi Cafe and Masala Library By Jiggs Kalra.

Riyaz Amlani, CEO and Managing Director, Impresario Handmade Restaurants, calls the curbs on restaurants unfair.

"There's no thought behind restricting industries like F&B and retail once more. We have had a gun pointed on our heads and expensive licence and taxes have been paid before March 31, and yet we have been forced into a lockdown with zero relief or support from the government. It's about time the government starts giving this industry the relief that it so badly needs," he adds.

Better Prepared

Though the industry is worried about the impact of the second wave of Covid-19, it also seems to be better prepared to handle shocks this time. In the last one year, ITC has set up warehouses closer to the market in order to reach faster to consumers. "ITC has taken all necessary steps to ensure enhanced availability of products for consumers across all channels," says B. Sumant, Executive Director, ITC.

"Over the period of the pandemic, we have developed strong operating policies and agile organisational structures for dealing with all types of market constraints and volatility. We are confident that our robust supply chain system will ensure that all sales channels, including e-commerce, are serviced adequately. We also now have a fully operational ITC e-store in all metro cities, which can meet consumer requirement directly," he adds.

Britannia, says Managing Director Varun Berry, has not just ensured that its distributors are well-stocked, but has also implemented a real-time dealer management system that ensures quick conversion of orders, thereby ensuring product availability at any given time. "Moreover, the brand mix is also being prioritised to meet distinct requirements across regions, backed by appropriate inventory management at our depots and factories. All our factories are currently operating at optimal capacities to maximise the supply of our brands," says Berry.

Godrej Consumer Products, says Kataria, has been trying to evenly distribute its products across its 40-odd warehouses. "In case one warehouse comes under lockdown for 7-10 days at a stretch, we are ensuring that products are supplied from another warehouse."

The real estate industry, on the other hand, seems well prepared to tackle the situation. During the first wave of Covid-19, the sector not just witnessed dampening of sales, but acute shortage of labour also contributed to the business coming to a standstill.

"Complying with state government SOPs, developers are also being responsible and facilitating food, shelter and healthcare safety gears for migrant labourers and their families. They are also being paid wages regularly, which acts as a safety net that keeps the reverse migration in construction and real estate industry at bay," says Niranjan Hiranandani, Managing Director, Hiranandani Group and National President, National Real Estate Development Council.

The second wave of Covid-19 has certainly kept the Indian industry on tenterhooks. However well-prepared it may claim to be, it certainly can't afford another prolonged period of disruption. As cases rise unabatedly, the only solution to maintain business continuity seems to be mass vaccination.