We expect start-up funding to be lower once the situation normalises, resulting in lower competition for the branded QSRs.
Looking beyond the noise, we present potential changes in operating environment and likely beneficiaries. A root-cause-analysis of every trend indicates that it’s a consumer/ customer behaviour change. Starting today I-Sec analyst team will present you the (sector-wise) ‘Long term and short term’ trend changes and the impacted (positive and negative) stocks. Italian expression ‘Andrà tutto bene’ means ‘everything will be fine’. Top long-term trends in consumption are, a reset of ‘excess consumption’ impacting the discretionary within Staples, acceleration in cessation rates for sin (addictive) products, particularly cigarettes, industry consolidation and share gains for larger incumbents, a redrawing of distribution models (higher disintermediation, faster growth in e-commerce etc), narrative of increasing work-from-home occasions potentially resulting in expanded market opportunity for food delivery and even for malls and multiplexes.
Beneficiaries, HUL, Jubilant Food, Titan, Avenue Supermarts; Potentially negatively impacted companies, ITC, Emami, Page. In marketing parlance, while the ‘heavy users’ / ‘high rollers’ / ‘big spenders’ (typically, one-third of consumers in most categories account for two-third of the category consumption) are expected to continue the usage pattern, there is realistic risk of lower / no consumption from ‘non-buyers’ / ‘light buyers’ / ‘moderate buyers’. This poses a material risk for most categories, particularly the discretionary ones within Staples (examples of skincare, cosmetics).
We believe that the current lockdown could negatively impact the cigarette industry. As cigarettes are not an essential item, production and availability to consumers is impacted. This translates into a significant opportunity (albeit forced) for the fringe smokers to quit smoking – thereby accelerating the cessation of smokers in an industry already struggling for volume growth.
We believe that the lockdown and weak demand thereafter in H1FY21 will lead to struggles for the informal segment (macro, liquidity and balance sheet linked). This would translate into market share gains for the organised players, and that too with lesser ad-spends given the lower competitive intensity. This theme will also play out significantly for large retailers as the investment ability of smaller unorganised players is likely to be depressed post the crisis.
We see tectonic shift in staples and retail industries where retailers like D-Mart have innovated new models to supply groceries to consumers. These models pave way for bypassing distributors / wholesalers, thereby providing better value to consumers while improving company profitability. Essentially, its scale begets scale along with higher lifecycle value of new customers recruited during this period.
Currently e-commerce companies are able to acquire new customers without any significant customer acquisition costs. We believe that the consumer behaviour change is likely to result in a faster shift towards the online channel. This also means that the investment by consumer companies towards the online channel should also increase significantly.
We expect start-up funding to be lower once the situation normalises, resulting in lower competition for the branded QSRs. This is likely to increase penetration and usage of categories like handwash, disinfectants, packaged foods, etc. Even brands like McDonald’s stands to gain as we expect higher consumer willingness to pay a small premium for hygiene (versus the roadside food vendor option).