The ongoing coronavirus pandemic will have an even larger impact on the FMCG sector than Prime Minister Narendra Modi’s demonetisation move in November 2016, which was followed by introduction of Goods and Services Tax. “Impact of the on-going pandemic will be sharper, compared with earlier large macro-economic events such as demonetisation and GST implementation,” a CARE Ratings report said in its outlook of the fast-moving consumer goods industry on Tuesday. In fact, April month of Q1FY21 will remain the most affected duration for the FMCG industry even while the sector will continue to face the headwinds of coronavirus for the entire fiscal year 2020-21.
Just like last year which had been a turbulent year for the FMCG industry due to slowdown and demand slump, this year has so far not been generous either owing to coronavirus. Days after the coronavirus hit Indian shores, the government had imposed a nationwide lockdown which severely affected the supply chains of the company. During the lockdown period, capacity utilisation of factories also fell to even below 50% which hampered the availability of several branded products. Large numbers of migrant workers left for their hometowns, leaving companies shorthanded. By March end, finished goods inventories had started to dry up.
And now when the companies have started to achieve pre-COVID production levels, there has been a marked shift in the consumer behaviour. Categories such as home and personal care, which otherwise makeup 50% of the total FMCG sector are likely to witness a further downturn. Products in these categories include body shower, moisturisers, face wash, hair gel, hair oil, etc. “These products are discretionary in nature and consumers tend to delay their purchases in times when there are fears of job losses and falling disposable incomes,” the report said. Overall, FY21 is likely to witness soft consumption trends and FMCG companies are expected to report modest volume and sales growth during the year.