Covid-19 induced lockdown and its after-effects on FMCG and retail industries

In the last few days, we have heard several leaders / experts saying that the post #Covid-19 life will not be the same. I picked up the Indian #FMCG and #retail industry here, to discuss what will change and to what extent.

That consumers’ preventive mindset will prevail for a longer period, even after total relaxation on movements and opening of establishments / economy - is at the core of what I have included below:

Discretionary spending will remain subdued for longer than anticipated:

In the post Covid-19 situation, consumers will continue to be cautious on their spending as well as lifestyle (mainly out-of-home). As per a recent Nielsen survey of 1,330 respondents, ~64% suggested they intend to spend less on restaurant and movie theatre visits; ~54% indicated they will reduce spends on automobiles, luxury brands and leisure travel. 

India has always been a savings-oriented economy and this sudden jolt to the earnings / savings will make consumers spend even more conservatively. Whether this trend will hold up only for the next 12 months or more is hard to say, especially with reports from the WHO suggesting we may have to follow social distancing till at least 2022.

Three most affected sectors will be non-essential #CPG such as apparel & accessories, #HoReCa, and travel & tourism.

Strengthening online retail network to be the top priority for all brands:

Businesses that never actively focused on their e-commerce strategies will go after it aggressively. Nielsen’s survey of corporates suggests ~57% of them will pursue e-commerce channel as the top priority in the next 12 months. This is a result of the preventive mindset discussed above, forcing brands to come up with innovative efforts to reach consumers, who will prefer ordering at home instead of going to public avenues such as malls or shopping stores, for as long as possible.

Traditional retailers to thrive:

Mom-and-pop (Kirana) store format proved a point, with efficient and timely availability/delivery of goods for consumers, which many modern retailers struggled with. Their deep-rooted presence brings them strong market power to drive majority of the retail volumes. These factors, for sure, will keep these #kirana stores relevant and moving. Moreover, these retailers will become stronger as digitalisation takes over, particularly with initiatives such as Reliance’s #JioMart. However, this format will face its biggest threat from the online retailing industry, as discussed above.

Switches in brand loyalties:

The ongoing lockdown has resulted in stock-outs of favourite brands of essential items, forcing consumers to try out newer domestic brands. Popular and dominant brands have started to lose business to these domestic brands, due to the forced introduction to such brands, which may result in some consumers deciding to continue with these, in the future too.