March 16, 2021
A lot has changed for the FMCG industry in the last 6-8 months, supply chain and manufacturing constraints took a toll on the sector for the initial two months of the lockdown after which players have coped well through digitization, e-commerce sales, and other methods.
But during covid and lock down the supply industry had many jolted and demand for many items was unstable. While short-term demand for some items increased sharply, for others it significantly decreased. Lockdowns decelerated the physical flow of materials around the country for a few weeks and required all players to work closely with local and state governments till essential items were allowed to move smoothly.
The supply could be affected with uncertainty like a warehouse could become unavailable because of an infection or a supplier going out of business. According to a McKinsey report, companies have had to simplify their portfolios to optimize their and the retailer’s supply chains.
But now companies have found different effective ways to not let supply chain that broke many companies. Now Companies have assigned inadequate inventory across customers to create a win-win situation, addressed dipping service levels with partners, and improved end-to-end cost to serve. The focus has been on fast-tracking new supplier approval processes, maximizing supply continuity, raw material availability, planning for backup sourcing, flexible and mobile storage, and re-thinking last-mile delivery.
Most players in the FMCG space are moving to a more decentralized and localized approach so that they can move closer to the shopper.
Like Kellogg India stability, is aiming for further localization and diversification to minimize disruption on the supply of key raw materials and already has 95% of its products locally manufactured in India. Factors like convenience, safety, choice, and value, along with easier access to faster internet speed on mobiles is accelerating the adoption of e-comm.
As per a report by Unicommerce and Kearney sales on e-commerce grew 36% in volume in comparison to the previous year and value growth was 30% in the quarter ended December. There’s been a huge shift in every firm’s approach towards online sales.
Hershey India’s e-comm business grew four times in terms of its contribution to business in 2020 as compared to its contribution in 2019. Close to 10% of the company’s domestic business sales came from e-commerce.
FMCG firms are reporting that they’re seeing many changes in consumer trends – customers are predictably buying more “at-home” consumption products, choosing to buy more premium products due to safety concerns, and also opting for “better-for-you”(BFY) food products for health reasons. As per a recent Nielsen study, 64% of consumers claim to have increased spends towards healthy foods.
For Kellogg India, this has meant a strong demand for breakfast cereals leading to a quick business recovery to pre-Covid levels. For Hershey India, this trend has led to the company building their plant protein brand Sofit. The firm launched fortified Sofit almond milk and continues to innovate to add more products to the health category.
There is also a trend where premium products are being preferred more even in rural markets. “Young people in rural markets are trying products in smaller SKUs and brands are making specific packs for rural markets which are affordable. This segment is growing rapidly and brands certainly cannot ignore it if they are looking for sustained growth.
Business Recovery
Mainly, the FMCG sector has recovered to pre-Covid levels and some categories like health and nutrition have seen faster growth. At Kellogg India due to the increase in at-home consumption and consumer focus on health, there has been an increase in demand for products that are nutritious leading the firm to continue to invest in delivering nutrition and convenience.
For Hershey India, while Q1 of 2020 was predictably impacted, the firm ended 2020 with robust performance and sales growth of 20%. This can be attributed to categories like home baking and snacking which witnessed strong growth as consumers spent more time at home.
Companies across different categories have successfully steered themselves towards growth and recovery keeping in mind consumer trends and in order to drive sales, most firms are specifically focused on increased distribution.