AN OVERVIEW OF FMCG SECTOR
FMCG (Fast Moving Consumer Goods) industry is the 4th largest sector in the Indian economy. It comprises those goods which are sold quickly (fast-moving) and at a relatively low cost. There are a lot of changes because of COVID-19 in the FMCG sector.
There are 3 main segments in this sector—
- Food and beverages (19% of the sector)
- Healthcare products (31% of the sector)
- Household and personal care products (50% of the sector)
Demand for quality goods and services have been going up in rural areas of India, on the back of improved distribution channels of manufacturing and FMCG companies. The urban segment accounted for a revenue share of 55 percent. This is in the overall revenues recorded by the FMCG sector in India. The demand has also been impacted by COVID-19 in the FMCG sector
The retail market in India is estimated to reach US$ 1.1 trillion by 2020 from US$ 840 billion in 2017, with modern trade expected to grow at 20 percent – 25 percent per annum, which is likely to boost revenues of FMCG companies. Revenues of the FMCG sector reached Rs 3.4 lakh crore (US$ 52.75 billion) in FY18 and are estimated to reach US$ 103.7 billion in 2020. The sector witnessed a growth of 16.5 percent in value terms between July-September 2018
GOVERNMENT INITIATIVES FOR FMCG SECTOR
- The Government of India has approved 100 percent Foreign Direct Investment (FDI) in the cash and carry segment and in single-brand retail along with 51 percent FDI in multi-brand retail.
- The Government of India has drafted a new Consumer Protection Bill with special emphasis on setting up an extensive mechanism to ensure simple, speedy, accessible, affordable and timely delivery of justice to consumers.
- The Goods and Services Tax (GST) is beneficial for the FMCG industry as many of the FMCG products such as Soap, Toothpaste, and Hair oil now come under 18 percent tax bracket against the previous 23-24 percent rate. Also, there have been a reduction of 0-5 percent and 12-18 percent respectively rates on food products and hygiene products.
IMPACTS OF CORONAVIRUS ON FMCG SECTOR
1)FMCG sector moving fast to restock stores
Above all, Companies tied up with third-party manufacturers with spare spaces to increase the production of essential commodities.
2)Operations limited only to essential products
Also, Even the FMCG companies which have been allowed to limit their operations only to essential products.
For example, Coca-Cola has limited its production only to essential beverages like water, juice, tea, coffee, etc.
ITC, which manufactures personal hygiene products like hand wash, soaps and sanitizers under Savlon brand and food items under brands such as Aashirvad, is operational with bare minimum people as these are essential products.
3) Amazon sellers brace for layoffs and worse after coronavirus-related products get priority
In the wake of the coronavirus outbreak, e-commerce sites like Amazon are prioritizing only essential FMCG sector commodities like household staples, medical supplies, etc because of COVID-19. The sellers whose products are not related to coronavirus are facing problems due to this. Many sellers have replenished their inventories amidst the fear of shortage of supply from suppliers and now have thousands of dollars sitting and waiting in their godown.
Initially, these sellers used to stock their inventories at Amazon warehouses which were then shipped to the consumers by Amazon but now they have to manage new inventories and deliveries. Further merchant-fulfilled orders aren’t Prime eligible, so shoppers won’t be able to receive two-day free shipping for those items. Sellers will also have to charge for shipping, which is normally free for Prime members.
4.)Impact on beauty products
“Makeup is said to be recession-proof, but we are in a different situation right now,” says Samir Modi, executive director of Modi Enterprises and founder of makeup brand Colorbar. The beauty industry has survived world wars, insurgency attacks, and economic recessions. COVID-19 has impacted the FMCG sector too.
The much-needed habit of not touching the face to prevent the spread of the virus is also keeping the people from makeups.
Further, Beauty brands across the country—both Indian and international—gradually limited their brick and mortar operations over the last fortnight, turning online for transactions and communications. Some makeup artists have started giving digital courses for makeup. These courses can make people less reliant on beauty professionals as they may try their stylists works using home kits.
However, some are optimistic that people are always going to need makeups, especially on the rescheduling of their now postponed marriages.
ROAD AHEAD FOR FMCG SECTOR
1)TAPPING OF COMMON RESOURCES
Also, The major challenges in front of the FMCG companies are the logistics and supply chain problems to make available the essential commodities in different regions. However, companies are planning to join hands and tap common resources for the delivery of essentials.
For example, Walmart-owned e-commerce company Flipkart, because of covid-19, was certified to stock FMCG sector food items in their warehouses. Companies like Uber and Ola have offered to mobilize their currently grounded fleets to help eCommerce companies in last-mile deliveries. Three eCommerce companies have approached the railways to deliver 23 tonnes of goods each day through rail.
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2)PROPER UTILISATION OF COMPANIES EXPERTISE
Moreover, Government has asked automobile companies to help in the production of ventilators, masks, and other medical equipment. For example, a collaboration of Maruti Suzuki with AgVa healthcare for the production of ventilators. The former will be responsible for the production in huge volumes to reach a target of 10000 ventilators a month while the latter will be responsible for providing the technology.
3)A GOODWILL GESTURE BY COMPANIES
Therefore, India inc. is standing tall in the face of a crisis. In spite of cost pressures in terms of raw materials and supply chain logistics which have wiped off profits to a large extent, the companies are not raising prices. The companies are continuing manufacturing and distribution with minimum people who are still working.