Are frequent local lockdowns the biggest threat to the recovery of the FMCG sector?

Imagine a road with a bakery on one side and a grocery store on the other. On a normal day, you'd buy a loaf of bread from the former, your favourite brand of butter or cheese from the latter, and then go back home to make your favourite sandwich.

This sounds like last month, when the COVID-induced lockdown was lifted (in most places in India) and you could head out to buy whatever you wanted. Today, India's Coronavirus tally is over 14 lakh. The number of cases is rising daily, and the country is third only behind the United States and Brazil in terms of the total count.

To arrest the spread of the virus, state governments and municipal authorities have imposed intermittent lockdowns in cities such as Pune, Bengaluru, Mumbai, Mumbai Metropolitan Region (MMR), etc. In some areas, stores are open on one side of the road on a day, and on the other side the next day. So, just imagine making your favourite sandwich now.

The economy, especially the FMCG sector which is leading (India's economic) recovery, has been hit hard by these local lockdowns. The stores open for a short time and then shut down (only milk dairies and chemist shops are allowed to open throughout the day). Add to this the sudden lockdown announcements. All these have hit distribution networks, encouraged hoarding, increased anxiety levels among people, and hampered economic recovery.

An Economic Times report says, "The Nomura India Business Resumption Index (NIBRI), a weekly measure, fell to 66.8 for the seven days ended July 12 from 69.3 on July 5 and 70.5 at the end of June." A dip in the NIBRI isn't a positive sign.

We spoke to a few industry experts on these local lockdowns, how they'll impact the FMCG sector, and what should brands do now.

Jayen Mehta, senior general manager, planning and marketing, GCMMF (Amul)

Yes, the lockdowns have impacted the markets... Our (Amul) supply chain has remained insulated because we're in the business of milk and fresh dairy products that's allowed to continue as compared to other companies in the FMCG sector.

We operate regardless of the severity of the lockdown. The pandemic is real and the number of cases has risen. So, the government has taken necessary steps, which we (companies) have to take in our stride.

Mayank Shah, category head, Parle Products

The frequent localised lockdowns do create a bit of disruption but compared to the nationwide lockdowns that we have witnessed earlier, these are not as bad. A large part of the country is open barring a few areas under lockdown, this does not hamper the business on a large scale. Consumers hoard essentials before and after a localised lockdown. As responsible corporate citizens, we understand the government's decision for the partial lockdown in areas with COVID positive cases to guard the safety of the citizens.

In the new normal, this is the need of the hour and we as a company are prepared for it. The localised lockdowns will continue in areas with rising cases. We support the government's decision for the localised lockdowns and simultaneously giving a chance for the economic recovery in other parts of the country.

Sita Lakshmi Narayan Swami, brand and consumer expert (former Rediffusion Y&R, UTV Media, Zee, JWT)

People will overstock because one, everybody is unsure about what's happening, and two, they're all anxious about when the next lockdown will happen.

FMCG brands will also face a hard challenge. With the unpredictability of these lockdowns, brands will see their route maps (distribution networks) hit, with authorities playing spoilsport, or border crossing becoming an issue.

How Maharashtra deals with a lockdown is different from how the government at Delhi NCR does. Also, big brands will invest in predicting ahead to ensure smooth supply. It will be a tough challenge because there is no previous precedent of such situations.

These ad hoc lockdowns will hamper distribution channels which, in turn, will impact buying behaviour, and even loyalty. Better, or well, known brands will quickly go out of stock and people will be forced to try the not so well known ones because they're the only ones available.

People will read the back of the packs and bottles more closely, and this will also influence their buying behaviour. But, it's a good chance for both the big brands to reaffirm the loyalty consumers placed in them and for the lesser-known brands to win new consumers.

Also, we must not forget the impact on online shopping - portals like Amazon, or BigBasket for FMCG goods. Their operations are also hampered due to these sudden local lockdowns, and customers end up seeing cancelled orders, or items being unavailable, or even the portals not delivering to their areas.

Rajat Wahi, partner, Deloitte India

The local authorities need to be mindful of the lockdowns because while they’re important for the safety of the public, they’re taking a toll on local businesses. Frequent local lockdowns are having a major impact on the businesses’ ability to plan and deliver essential and other products to end consumers. They’re posing a major planning and execution challenge for the suppliers, employees and owners.

Sudden lockdowns especially disrupt the supply chain, and companies and retailers have to worry about the products in storage, transit and also the pending orders. It becomes very challenging to reroute products in such a short period.

Employees are also impacted - from distributors to salespeople to shopkeepers and office workers. Their mobility and ability to do their jobs is impacted.

It will be great to see the local administrations working closely with the local businesses to plan the lockdown and look at ways to reduce the disruption. This will also give companies, employees, suppliers and consumers time to prepare.

While looking to contain the virus’ spread, the focus could be more on ensuring proper adherence to wearing masks, social distancing measures, and hygiene protocols. This way the businesses will have less disruption, and the safety of the people will also be ensured.

Jay Sachdev, manager, marketing, Balaji Wafers

It's our peak month right now, and the impact isn't negative. Yes, there are pockets where the lockdown has been imposed and our supply channels have been slightly affected at these places.

We, beforehand, or once a week in advance, supply goods to our main dealers. In areas such as Mumbai, we supply thrice a week. And when people do come to know about a lockdown a day or two in advance, they stock the goods. For instance, in some areas of Uttar Pradesh, there is a lockdown during the weekend, so people buy what they need during the weekday.

Right now, people are moving towards packed goods made in automated factories because they know it's hygienic. They trust the packed goods as compared to open ('khulla') goods.

The impact of the local lockdowns will be there, but it won't be that high. Companies with solid management, and production, packing and distribution facilities won't be impacted heavily.

Amar Wadhwa, founder and executive director, CrystalEyes (A marketing consultancy)

As we move ahead, it seems like the government and local bodies will need to manage 'outbreaks' in localised areas. As we saw in April and May, when there was a lockdown across the country, most FMCG categories were not much affected. In fact, some of them benefited as consumers stocked up whenever they got a chance.

Localised lockdowns won't have much of an impact, given that they will be shorter and more contained. At best, they will lead to temporary displacement of demand. However, brands, which can build greater trust and strengthen their value proposition, can look to grab market share.

I think consumers will flock more towards brands they trust and value in these times of uncertainty. And that is where the big opportunity lies for branded players in the FMCG segment.