With consumers expected to limit their discretionary spends in the coming months and sales getting restricted to only essentials, challenges for the consumer goods sector abound in coming times.
India’s retail sector is staring at a 40% degrowth on-year basis as the coronavirus outbreak continues to deliver its blow. With consumers expected to limit their discretionary spends in the coming months and sales getting restricted to only essentials, challenges for the consumer goods sector abound in coming times, Anil Talreja, Partner, Deloitte India, told Financial Express Online. Supply chain will take some time to re-establish due to labour migration and that poses an additional concern, he added. Nonetheless, the outbreak has some silver linings for certain sections within retail as it is expected that kirana stores will see an uptick in the daily cash generation and e-commerce will get a favour of customers. Edited excerpts:
What is the outlook for the retail sector in coming months?
A very important aspect to note in the context of the retail Kirana stores is that the daily cash generation has significantly increased. The point here is that once things open up whether these store owners will put all the funds back into the business or will park some of the funds as investments (given the uncertainty). This will be essential for the wheels of the economy to run. In the coming months, assuming that the curve flattening is delayed, then the retail sector will continue to grapple with supply side disruptions leading to stock unavailability. The sales would be severely restricted to only the very basic essential and that too primarily in food and beverages. The recent labour migrations will also add on to the already stressed supply chains. Post lockdown, the uptick in the sales will be slow as the supply chains will take time to get reestablished and we can expect to see a rise in sales after about 2 to 3 months post lifting of lockdown. However, things will only stabilize in between Q3 and Q4 provided we don’t have an extension of the lockdown.
Do you expect heavy damages in the aftermath of corona?
We expect a heavy impact on the consumer products and retail sectors. The consumers are likely to curtail their discretionary spending which would significantly impact the sector’s growth further. On an year on year basis we can expect the industry to have a degrowth of anywhere between 30 to 40%. This is only an estimate as the situation is extremely dynamic and making any firm assumptions are difficult. However, if the supply and logistics disruptions are minimized, a quick recovery in categories such as food and beverage and FMCG products can be expected post the situation concludes.
What can consumer goods companies do to cushion blow?
The consumer behavior and attitude will witness a shift due to the impact of coronavirus. We can expect consumers shifting to more online purchases and companies moving towards decentralized supply chains. Companies can ensure that they provide value for money and communicate the same as post coronavirus consumers will have lower purchasing power and will seek brands that assure value at minimal/lower cost. Companies will move towards making their supply chains more dynamic and will rebalance their rural – urban mix.