How has India consumed so far in the first fortnight of COVID-19

As soon as Prime Minister Narendra Modi announced the 21-day lockdown to fight the dreaded COVID-19, Indians threw caution to the wind crowding groceries stores across the country.

Since mid March, following news of the coronavirus reaching our doorsteps, people had started hoarding essential items. Interestingly, in just a fortnight, consumption patterns seem to have changed.

This unprecedented crisis is sure to hit every aspect of our lives, and a clearer picture of the effects of COVID-19 on consumption and distribution are emerging now. 

Coronavirus, in short, has increased sales of packaged food, personal and home care products. But, it has also put pressure on the supply chain and there can be shortages if the government does not allow movement of trucks soon to wholesale and retail centres.

As of today, the crisis has resulted in hoarding and the supply chain is crumbling under the weight of increasing demand.

Although the government has said that retail and provision stores will remain open, there is very little communication between the government and the police, who have been shutting down all retail stores. The government has also not defined what essential items mean and hence police have shut down factories of many a brands in packaged food segment.

"It is clear that standalone modern trade, which is run by family businesses, is selling a lot more than big-box modern trade. There has been no impact on smaller stores as of March 15. There is increased pressure on manpower, as much as 20 percent or more, and as the week progresses, more of the workforce is not available to work," says Lalit Bhise, Co-founder and CEO of Mobisy Technologies. He adds that Tier-2 and Tier-3 cities do not have a supply chain crisis as yet. 

Standalone modern trade or large family owned local chains or stores have been able to perform well because of their ability to work with smaller local brands as compared to national retail brands who were working with bigger companies.

Mobisy Technologies is a retail tech firm that works with brands to set up their distribution in cities and towns and they have shared data about consumption patterns in cities like Bangalore, Mumbai, Delhi, and Chennai. They have also shared insight on Tier-2 and Tier-3 city consumption.

"This is perhaps the best time for distribution to go digital. Packaged food, personal health, and home care categories will see a surge," says Lalit.

Retailers are using apps to make orders with distributors and FMCG companies. Mobisy, for instance, has the Distiman app which enables the wholesaler and retailer to order products real time and work with the brand to replenish the stock in less than 24 hours.

YourStory together with Mobisy Technologies has compiled data of eight cities and 300 major brands to understand how coronavirus is impacting sales and what items are selling. 

According to KPMG and PWC there are close to 10 million stores in India and about half a million distributors. Less than two percent have been digitised so far. Consumer insights will help provide small stores ways to revamp their sourcing strategies and change the way they work with distributors. Read our story on how Indian distribution works.

The current scenario

While there was no lockdown announced till March 23, the general sense of panic began only in the second week of March when governments began to report an increase in cases. It all started with hand-sanitizers being sold out.

As far as general trade in Tier 1 India goes, personal hygiene, ready to eat, and baby care products rose up to 40 percent in sales. This is being played out through all distribution channels.

Tier 1: Standalone modern trade (single store) versus Modern Trade (multi-chain store):  

There is some panic here in retail because of possible stockouts. Overall sales over the second weekend of March were up over 100 percent. All the top demand categories are sold out, especially baby care items, dairy, and read-to-eat foods. Availability of personal hygiene and home care seem to be holding out.

“There is a fight between retailers and brands. Retailers are able to negotiate with smaller brands and big brands are pushing smaller retailers to stock their product. The top priority as of now is to avoid a stockout. Brands and retailers are now commanding a premium and there is also a fight for the retail space for top selling products,’’ says Lalit. 

He adds, "They are almost in a bullying mode. Brands and retailers are realigning supply chains to cater to key accounts. This is being seen as an opportunity to end the year on a high. They are using this for PR and also permanently change consumer habits and create new categories in mainly personal hygiene."

In general trade in Tier-II towns like Coimbatore, Mysore, Vijaywada, Mobisy notes that baby care, personal hygiene, and mosquito repellents are seeing a spike. The 8-10 percent incremental demand is serviced by wholesale, and it is business as usual here.

Irrevocable shifts in consumption pattern

The biggest challenge at the moment is to cushion the blow to the supply chain that is a direct result of social distancing measures. With blue-collar workers scrambling back home, perishables may take a hit.

Mobisy Technologies observes that retail store workers are panicking and fear stores closing down.

There are major and permanent shifts happening to consumer behaviour. There is rapid adoption of e-grocery platforms, while consumption of personal hygiene and home care products grow and create a new base for themselves.

Categories that will not sell very well going forward include hair oil, which is primarily a commodity and price sensitive. People are going for lower price and local alternatives. 

In the first two weeks salty snacks and mineral water were stocked up too but consumers preferred to buy regional brands based on availability.

"Taste preferences will kick in and there will be an unfavourable value to volume ratios for national brands like dairy, ready to eat, and masala," says Lalit.

While the above mentioned products are going to slowdown in sales, there are categories expected to slow down over a period of two weeks. These products are detergents, tea/coffee and sauces.

However there are categories that are going to be resilient and these categories will continue to sell well. These products are baby food, soaps, shampoo, juices, health drinks, and chocolates.

Tech adoption

In the coming quarter, brands will emphasise on smaller stores going digital for their order placement process. FMCG companies will focus on smart TV and OTT advertising going forward with targeted ads.

"We foresee demand at retail driven by the above factors and not just placements and mainstream above-the-line marketing," says Lalit.

As the demand generated for a lot of products and categories increase, Mobisy feels that drop sizes may not justify a salesman driven model. Instead, it predicts the emergence of app-only retail brands being born and thriving in such a situation.

The challenge of limited real estate and companies chasing depth with the same retailer will force technology adoption. It would also be impossible for a retailer to reorder without the help of technology. 

Customer acquisition, retention, and service during the Cornavirus crisis

Trust and convenience can scale with adoption of technology. Consumers want just in time and only usage of digital resources will enable distribution to reach products to the store on time as more people will stay at home and venture out to make bulk purchases. 

“Stand-alone supermarkets will beat big guys at their game as there is no corporate hierarchy and the barrier for entry for small brands is much lower. Shop-in-shops driving footfalls have to go through a large bureaucracy when they deal with modern trade chains. However, today the aggregation of supply chain is currently happening at an offline level and this needs to move towards the usage of apps and smartphones,” says Lalit.

Payments and working capital

Another big trend is the use of digital apps for payment and loans. The retailer pays the brand’s salesman with GPay or PhonePe or Paytm who in turn pays the distributors again through GPay or PhonePe or PayTM. There is increased cash flow because of increased sale and this has allowed retailers to buy in advance. 

The ability to underwrite retailer credit will be key to the success of the ecosystem going forward. The credit period is now absent because of the crisis and all sales are on a “cash-and-carry”. None of the wholesalers are increasing the credit cycle for the retailer and brands too are focused on ensuring the credit cycle to wholesalers is less than ten days, earlier it was three weeks.

Brewing trouble

A lot of brands have been hit by the lockdown in cities and towns all over India. 

"Warehouses have been closed and small shops are closed too. Ecommerce is not taking off in this period and we can be affected completely if the COVID-19 crisis continues," says Manish Chowdhary, Co-founder of Fit & Glow, a company that manufactures and sells personal care products.

Others say their manufacturing plants cannot be closed for more than a month or the crisis will kick in. 

"Although we have enough stock, of packaged food, for about 45 days, it only after that period that frightens us. We have to keep our plants running," says Mithun Appiah, CEO of Sumeru Foods. 

Over the next two weeks, YourStory will be looking at how the supply chain industry is affected and how these digital heroes like Mobisy, Jumbotail, and Udaan are going to make the supply chain resilient.

(Edited by Dipti Nair)