With the coronavirus outbreak continuing its upward swing, FMCG companies may be in for a further blow as consumer sentiment remains shaken. This will also lead to a decline in purchases of costlier FMCG products.
With the coronavirus outbreak continuing its upward swing, FMCG companies may be in for a further blow as consumer sentiment remains shaken. This will also lead to a decline in purchases of costlier FMCG products, according to a research report. “Given second order adverse impact on consumer sentiment, wage growth etc, we see risk to premiumisation trend and lower discretionary spends/impulse purchases if the macro weakness is prolonged,” according to the JP Morgan report. Pre-coronavirus, FMCG companies were reeling under a prolonged demand slump as various factors led to lower sales growth.
Before the outbreak of coronavirus, many FMCG companies reported a decline in sales growth as people withheld spendings. According to various reports from Kotak, Nielsen and others, a decline in rural wages, rising unemployment and liquidity crunch in the market led to lesser cash availability with people, which also reflected in FMCG sales.
Currently, those companies who have overseas dealing are also impacted in markets in Africa, Middle East and South & South-East Asia. However, to the relief of FMCG companies, “benign COGS inflation (lower crude/palm oil despite rupee depreciation) would help mitigate the earnings impact,” the report added. Consumer staples companies are also seeing a disruption in manufacturing activities, warehousing, distribution and last mile delivery as the nation remains under a lockdown. In the coming days, these companies expect improvement in lack of staff, obtaining clearances from government bodies to run operations smoothly.
For the distributors of FMCG goods, lesser availability of working capital remains a major concern if the weakness gets prolonged. They expect companies to extend support in terms of longer credit, the report said. In the aftermath of coronavirus, companies will have to realign their approach towards e-commerce channels as consumers are shifting to them for purchases, it added. Meanwhile, FMCG companies are not the only victims of coronavirus with the entire retail sector staring at major revenue losses in the coming days. Other industries such as aviation, tourism and hospitality are also severely affected.