Consumer companies assess impact of nationwide lockdown on businesses

Factories, offices and markets have fallen silent for now. As the lockdown drags on and movement remains restricted for all in India, consumer companies are assessing the impact of the shutdown on their businesses.

Though the Centre has clarified that the lockdown will not extend beyond April 14, states may still take their time to lift the curfew in their regions, de­pending on the number of cases that emerge every day. The picture hardly inspires confidence in companies, keen to protect their employees even as they aspire to continue business operations.

A snap poll by the Confederation of Indian Industry on Sunday brought out these fears of India Inc clearly. The survey of 200 chief executive officers (CEOs) of companies said they expected a sharp fall in revenue and profit over the next few months.

“As things stand now, there is no clarity yet on how long this lockdown will continue,” says Arvind Singhal, chairman, Technopak, a Gurugram-based management and retail consultancy.

“This means a straight impact on discretionary co­nsumption because pe­ople cannot step out freely, shop, eat or watch movies as they did earlier. The focus will be on buying essential items, including food and groceries. Since we are in the midst of a health crisis, the emphasis on buying health and hygiene products for germ protection will also remain," he says.

Nielsen data shows that categories such as hand sanitisers, floor cleaners and toilet cleaners grew sharply in February as the virus scare began to increase in India. Nielsen has compared the figures with growth seen between November and January. March data is yet to be shared by Nielsen.

Hand sanitisers, for instance, saw a sharp growth of 53 per cent in February as against 11 per cent growth between No­vember and January. Floor cleaners and toilet cleaners, on the other hand, grew 17 per cent and 13 per cent each versus 10 per cent and 9 per cent seen earlier.

Mayank Shah, senior category head, Parle Products, says the disruption to supply chains have been significant, which will take time to restore. “There has been an impact on business due to the lockdown and virus scare. From 7 per cent growth seen in January and February respectively, the growth rate in biscuits in March was down to three per cent. And April will be no better as the lockdown will continue for half the month,” he says.

 
Nielsen has maintained its growth forecast for the January-March at 5-6 per cent but most fast-moving consumer goods (FMCG) companies estimate growth to be half of that, at three per cent, as the impact of the lockdown stretches beyond the three-week period. The growth in staples and hygiene categories, say companies, may not offset the overall decline in the market.

 

 
“While FMCG will still be resilient versus many other sectors, the fact remains that recovery in terms of demand will take time,” says Mohit Malhotra, CEO, Dabur India. “The FMCG market was seeing a slowdown before the pandemic, the lockdown has exacerbated the situation,” he says.

Most companies from Hindustan Unilever (HUL) to ITC, Dabur, Nestle, Marico, Godrej Consumer, Coca-Cola as well as electronic and appliances firms have either scaled down or temporarily halted operations in view of the lockdown. While the government has permitted transportation of both essential and non-essential goods, companies admit that challenges remain and a recovery in terms of operations is at least two quarters away.

 
“April-June is a washout and we do expect demand to be back in this period. The festive season could see some up­tick, but that is two quarters away,” says Kamal Nandi, business head and executive vice president, Godrej Appliances.  

For the retail market, the challenges are even more because people remain fe­arful of stepping out and congregating at shops and retail establishments for fear of catching the virus. The government has been strict in enforcing the lockdown, permitting only grocery re­tailers to operate across with strictures to maintain hy­giene standards and ensure crowd management.

With malls, multiplexes and shopp­ing centres shut, categories such as lifestyle, fashion, electronics and fast-food retail have also seen big hit on their business. Estimates are these categories will take at least six to eight months to re­co­ver since concerns of local transmission of the virus remain high.

From invoking the force majeure cla­use to putting all expansion plans on ho­ld, retailers say the situation remains grim as they grapple with no sales, limited workforce and nervous consumers.

They are now seeking urgent relief measures from the government and ba­nks. This includes an extension of the loan moratorium to 270 days, providing additional working capital to tide over the cash crunch, making available easy credit lines to pay wages and salaries and relaxing share pricing norms for qualified institutional placements and preferential share allotments.

“Since most stores are shut, retailers have zero revenue. At the same time, they have to pay overheads such as salaries, electricity and rentals. An extension of the moratorium will provide so­me relief,” Kumar Rajagopalan, CEO, Retailers Association of India, said.

Devangshu Dutta, CEO, Third Eye­si­ght, says retailers will liquidate their sto­cks at a discount once the lockdown is li­fted in phases. He also says that sale periods could extend for longer durations and newer inventory could take time to get into stores.


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