Winning Requires Superior Business Crisis Planning
Anand Kripalu January 21, 2021
Almost four decades in the consumer products industry, with the most recent seven years running India's leading beverage alcohol company through the turbulence of the 'Highway Ban', demonetisation and GST, I have had my fair share of excitement and a few battle scars - but none has presented the unparalleled test of leading through a crisis, as in the year just gone by.
Business As Usual
When the news of Covid-19 in China started percolating in early 2020, we were already faced with the headwinds of a slowing economy and soft category growth. But, in an industry where dealing with issues is an everyday way of life, adopting a 'business as usual' mindset came naturally to us, and so we continued to run our business without being overly concerned. It was when the lockdown came into effect in March, that the reality of the impending crisis hit us - and how!
Starting March 24, unlike any other FMCG, our industry faced a complete shutdown that eventually lasted for six weeks. During this period, all liquor stores were closed, restaurants and bars brought down their shutters and all manufacturing operations were halted. For the first time in the company's history - and in my long career - topline vanished overnight and stayed at zero, day after day. The initial sense was one of disbelief, shock and mounting concern. For a company of our size and fixed costs, not having any sales meant a deep red profit & loss (P&L) and having to draw on cash reserves and bank credit. Public health concerns and societal views on alcohol created huge uncertainty about when our industry would be allowed to re-open.
But within days, our initial anxieties gave way to steely resolve. This was our leadership moment, and we would lead with clarity, determination - and on the front foot.
A Rallying Cry
Through all the debate on V, U and L-shaped recoveries, and a review of our own modelling tools, trackers and forecasts, we realised that at best these would throw up alternate scenarios, including a steep decline of our industry. However, the unpredictable economic impact of the pandemic with on-going restrictions meant that no forecast could be even broadly accurate.
We concluded that there was little point in dwelling on how our category would be impacted. We decided to focus only on two areas that fell within our 'circle of control' - outperforming competition (irrespective of category performance) and doing what was right for our people, customers, suppliers, and communities. Together, the two would make us stronger whenever we came out on the other side of the crisis. And so, 'emerge stronger' became our rallying cry and the organisational purpose that would visibly direct and drive all our efforts.
Win Every Day
In a year that was not going to be predictable or easy to plan, we set our goal to win in the marketplace, such that our people could feel it was within reach, in near-time. We articulated our goal as 'winning in the market, every day and every week'. We also defined how we would win - through consumer-led superior insights, sharp focus within our large brand portfolio, disciplined trade investment and strong cash conversion.
Invest To Grow
We recognised that consumer behaviour during the pandemic would turn towards established and trusted brands, and that it was highly likely that premium brands would stay resilient. Despite the challenges on category growth, we remained unwavering in our strategic action to strengthen our two flagship brands in the mass premium category - McDowell No. 1 Whisky and Royal Challenge Whisky - by relaunching these nationally with new packaging and marketing campaigns. At the top-end, we continued to invest in our Scotch portfolio and make it more accessible and contemporary through our new cool 'hipster' format.
Flexibility & Agility
We realised early that in an environment characterised by continuously changing local restrictions, varying waves of the virus across states and cities, and with labour supply and logistics uncertainties, winning in the market would require not just sales and marketing to outperform competition, but also supply would need to outperform through superior Business Crisis Planning. Hence, we built 'flexibility' and 'agility' as strategic advantages - extending these to include fungibility of investments between brands and states, speed of decision-making and execution, while being bolder and less risk averse.
True Business Partner
Staying closely connected with our partners and supporting them as their businesses went through turmoil, has been an integral part of how we have run our business during the pandemic. During the worst phase of our industry, when many parts of the trade were under lockdown, our senior leaders and salesforce made conscious efforts to connect virtually or on phone, one-on-one with key customers and suppliers, to understand their business impact and how we could support them. As CEO, I personally made scores of calls to our partners during the lockdown.
Shaped by these conversations, our support to customers included continuing certain elements of financial trade support, extending strategic customer agreements, and engaging with large-format retailers and luxury hotel chains who were well positioned to deliver business under social distancing. Additionally, we bolstered bartender community training through digital content in multiple local languages, while sales teams worked closely with customers on the ground to jointly innovate solutions in preparation for recovery.
As early as April, we took a call to cushion the lockdown impact on our supplier community by being prompt with payments despite the squeeze on our revenues. We identified vendors who were impacted significantly by the lockdown and even made additional supplementary payments. This helped them stay afloat and hopeful. They, too, reciprocated with prioritised materials and service when the unlocks were set in motion.
Our focus and agility resulted in a decisive early lead on competition. When the lockdown was lifted, our salesforce and supply chain were the first to be humming again. We were off the race first and kept building on the initial momentum as the weeks rolled on.
Cognizant that there would be immense pressure on revenue, we redoubled efforts on productivity across all cost lines, extracting efficiencies in advertising and promotional spending, saving in non-staff overheads, reducing interest costs, finding logistical efficiencies and practising overall fiscal discipline. We focussed on receivables and managing credit, trimmed inventory across the value chain and improved the quality and efficiency of payables. We exercised judiciousness into capex projects based on business criticality and return on investment.
Citizenship During Crisis
Early in March, when the country was staring at a huge shortage of sanitisers, we were amongst the first companies to publicly commit a donation of 3,00,000 litres of bulk hand sanitisers and 150,000 masks to frontline workers across public health departments, police and the army. The small hitch? We had never produced hand sanitisers before, neither did we know how to make them! But thanks to round-the-clock effort of a cross-functional team of 50 people, within less than a week, the first batch of bulk sanitisers had rolled out of our factory gate in Goa - the first of 15 such manufacturing units across the country. Adding to the company's efforts, our employees voluntarily contributed Rs 40 lakh to the PM CARES Fund from their salaries. We also contributed medical equipment and infrastructure to states.
The restaurant industry, the third largest in the services sector in India, contributing 2 per cent to the country's GDP, is severely impacted by the pandemic. Within the larger industry, pubs and bars sit at the heart of our business. In June, we committed Rs 75 crore to 'Raising the Bar,' an initiative that will run over two years to support bars, pubs and restaurants serving alcohol. This programme provides strong on-ground support to qualifying outlets, with physical equipment and 'hygiene kits', and helps to establish partnerships with online reservations and cashless systems.
Caring For Employees
Supporting and connecting with our people as they worked through a difficult year has been central to our way of managing the crisis. We announced work from home (WFH) for all our office employees a week before the announcement of the lockdown. Apart from giving them the wherewithal for a seamless transition to WFH arrangements, we announced a host of benefits early April, including counselling for employees and their families, leave to care for family members impacted by Covid, and insurance benefits paid by the company to the named beneficiaries of our employees, should they succumb to this virus. We continued our focus on learning and development with 'My Learning Hub' serving as a distance-learning platform. We introduced 'We Care', a multi-pronged comprehensive programme for physical, mental, financial and social wellbeing.
Frequent and transparent communication with our employees has been central to not only sustaining, but actually building engagement. These include 15-minute Townhalls, 'Coffee Connects' with our leaders, employee thematic campaigns on the intranet, group discussions on specific topics and virtual social events with family.
There can be many ways to respond to a crisis. Think of this as a sharp curve on an auto racetrack - the best place to pass competitors but requiring more skill than straight roads. For Diageo India, a combination of focus and agility, partnering our larger ecosystem and keeping our employees engaged, helped us forge ahead in a competitive race under testing conditions.
I remain bullish about the long-term growth prospects of the alco-bev category in India. The country's structural growth drivers remain intact, amplified by the added momentum during this crisis, of in-house consumption and premiumisation. As drinking has moved in-home during the pandemic, there is a silent withering of the traditional taboos on drinking at home. As consumers discover that drinking at home is safer and lighter on the wallet, there is a further impetus on premiumisation, with consumers upgrading their alcohol choices and drinking better. With restricted overseas travel, shifts have also happened from duty-free to duty-paid purchases in upscale off-trade retail formats.
New routes to reach out to consumers such as home delivery are opening. We anticipate states adopting e-governance to facilitate ease of doing business. These developments will give a significant boost to business and shape it for the better in the long-term, helping the industry and adding revenues to state coffers.
Finally, as we come out of this crisis, we are even more acutely aware of the deep and elemental need for human connection. This in turn will reinforce a changing narrative for the role of alcohol in the society, placing it in the heart of socialising and celebration.
Indeed, the best for our industry lies ahead.
(The author is MD and CEO, Diageo India, and Member, Diageo Global Executive)