Consumer behaviour is expected to see a shift towards greater awareness of hygiene, risk aversion related to spending, avoiding gatherings. It is expected that consumers will seek convenience through comfort food.
- Harsha Razdan and Manuj Ohri
The COVID-19 crisis has been unprecedented in its scale of impact and the restrictions it has put on normal life. As of today, there are already more than 2.7 million cases worldwide and closer home in India, more than a billion people have been under lockdown for about a month. As it is increasingly becoming clear, COVID-19 is likely to have a long-term impact on multiple aspects of life, even beyond the lifting of restrictions for at least 12 months.
First, consumer behaviour is expected to see a shift towards greater awareness of hygiene, risk aversion related to spending, avoiding gatherings. At the same time, it is expected that consumers will seek convenience through comfort food and a heightened interest towards natural or nature based products. Second, movement restrictions are expected to continue, and these will sometimes be dynamic. This may mean sudden shutting down of a certain market or specific supply chain disruptions due to new cases in part of the supply chain. Third, cash flows are expected to be restricted. This will be true, not only for companies but also their suppliers, dealers and consumers.
Given these major shifts, consumer goods companies will need to adjust the way they do business in seven ways:
Plan for startup and scaleup of operations:
All companies will need to think about how to start up and scale their operations through specific interventions to prevent disease and respond quickly in case of an outbreak. This will include new ways of working, profiling the most vulnerable part of the workforce (ones with co-morbidities and in a certain age bracket), Standard Operating Procedures (SOP) changes to start up, adequate training for people on the ground and ensuring adequate safeguards across key vendors and dealers. A central war room to coordinate multiple efforts will help companies plan from startup to scaleup through labour, working capital and raw material availability.
Anticipate and respond to changing consumer behaviour
It is important for consumer goods companies to anticipate, study and respond to changing consumer behaviour. Given lockdown restrictions, the only way for consumer connect today is through social media – the importance of getting a lifecycle view of the customer has become even more important today. Further, companies need to understand various moments of consumption and which ones will remain relevant in the post COVID-19 world. This will lead to companies adapting their messages (moving away from messages that link consumption to occasions or gatherings), smaller pack sizes, new launches to appeal to the new customer reality.
Look out for new alliances
This has already started with a number of consumer goods companies entering into alliances with companies that provided a way to reach their customers or channel partners during the lockdown. This has removed the barriers from the traditional channel towards new age e-commerce platforms and has opened up opportunities for companies to introduce greater efficiencies into the value chain. Companies that are successfully able to balance the old and new will find opportunities to sustain the gains even post lockdown.
This is also a great time to look at new opportunities for revenue through alternative channels, new suppliers in order to de-risk the supply chain.
Embrace digital for WFH productivity, sensing, efficiency, consumer connect and new business
While all companies have increased utilisation of digital ways of working, consumer goods companies will need to embrace digital across their operations.
The crisis has made companies realise the importance of granular data in making business decisions. As India moves towards a controlled opening of the lockdown, companies will need to adapt strategies based on micro market level demand and sales data, utilise data to create central dashboards for business decisions. At the same time, companies will need to be agile in the way they respond to changing market dynamics.
The crisis provides a great opportunity to look at digital transformation of the organisation across not only core operations but also support functions and utilising digital for new revenue through alliances.
Cash is king – suppliers, dealers’ ecosystem
While companies need to conserve cash for themselves, consumer goods companies will also need to re-assess their supply chain for distress and provide requisite support to ensure that their production lines keep running and their goods reach the end customers. Certain age-old norms on payments, credit terms will need to be revisited in order for companies to operate without disruption.
Fixed cost reduction
Like all other companies, consumer goods majors will need to look at reducing their fixed costs in line with revenue projections. While essentials are expected to make a strong recovery once lockdown is lifted or supply chain disruptions are solved, discretionary spend is expected to be muted in the short to medium term as a majority of the consumer base adjusts to a lower income.
Supply chain resilience
Pre COVID-19, supply chain decisions were often driven by cost reduction and seldom by risk considerations. Post COVID-19, companies with very lean supply chains will need to re-assess the assumptions behind cost-benefit of buffers like alternative sources, inventory. While this may increase the cost of operations, it will prepare companies to respond better till the time we continue to anticipate restrictions due to further spread of COVID-19.
- Harsha Razdan is Partner and Head — Consumer Markets and Internet Business, KPMG in India and Manuj Ohri is Partner, KPMG in India.