FMCG sector amid Covid-19 crisis

As demand for such goods spikes, industry tackles different set of challenges

KARACHI: In a span of just a few months, the Covid-19 pandemic has brought the world to its knees as all economies from the most developed to the developing ones have been ravaged by the crisis. And it seems that the destruction is far from over.

Easing lockdowns in many countries have stoked fears of a second wave of virus infections, which could have potentially devastating impact on the economies. As business activity resumes, a significant drop in demand has forced many organisations to rethink strategies and shift from expansion to survival mode.

With most businesses bearing the brunt of the havoc, the fast-moving consumer goods (FMCG) industry has managed to fare somewhat better than the rest. The almost two-month lockdown imposed by Pakistan government crippled many businesses, aggravating their financial burden.

However, the FMCG sector, which is an essential industry, has continued to operate and may have been the only least affected sector.

Commenting on the situation, Pakistan Business Council CEO Ehsan Malik told The Express Tribune that the impact of Covid-19 on the FMCG sector was positive. “Overall, domestic sales of all FMCG companies have remained buoyant,” he said.

Malik revealed that in the past few months, the buying pattern in the food sector picked up due to the panic caused by Covid-19 and seasonal purchases in Ramazan.

On the other hand, sales of the non-food side – items that cater to the needs of homes and personal care – also went up as there was strong demand for hygiene products such as soaps and cleaners.

In earlier comments to The Express Tribune, Karachi Chamber of Commerce and Industry (KCCI) former president Aamir Abdullah Zaki revealed that Pakistan’s demand for around 1,200 tons of sanitisers per year had more than doubled to 3,000 tons.

Echoing similar remarks, Reckitt Benckiser CEO Kashan Hasan shared that the company’s product range related to hygiene, particularly Dettol, had a substantial surge in demand.

However, he was of the view that the massive jump in purchases brought with it a different set of challenges for the FMCG sector during the crisis.

He pointed out that due to the nature of work of the supply, distribution and logistics department, work from home was not the solution, which many other corporations had adopted. Hence, ensuring safety of employees and running operations smoothly was the biggest challenge for the sector, he said.

Although the spike in demand worked in favour of the industry, there was increasing pressure to prevent any shortage in the market, which could, and in some cases did, fuel panic buying.

“Owing to the high demand for some of our range, we were under a lot of pressure from the market to ensure that we keep supply lines of our products intact,” the CEO said.

He, however, added that maintaining the supply chains was an arduous task amid the lockdown not just in Pakistan but across the globe.

“We depend on a lot of raw material coming from different parts of the world and there was lockdown in countries from Europe to the US and even in the Middle East, which made procurement of raw material challenging.”

The disruption in procurement was also felt by factories that relied on those items to run their operations smoothly, he said.

Adding to the difficulties was that the surge in demand for hygiene products was not confined to Pakistan, in fact, it was a global phenomenon. “This meant that the need for raw material also increased, which led to its shortage. There were incidents of unavailability and price hike in some cases.”

Sharing his own experience, Hasan said the company had to bring raw material via air route, which jacked up cost, to keep operating supply chains smoothly. He stressed that these challenges were not limited to Reckitt Benckiser only as many other FMCG companies faced similar difficulties in ensuring that their supply chains remained intact.

Elaborating on the same lines, Ehsan Malik said overall the FMCG sub-sectors functioned well and praised the suppliers, particularly the big ones that replenished their supply chains during these times.

Malik, who is also a former CEO of Unilever, said initially Unilever never offered any credit facility to its distributors but in some cases, where there were vulnerabilities, the company sold its goods on credit.

FMCG companies also took other such measures to ensure there was no financial burden on the supply chain.

Talking about consumer behaviour, Kashan Hasan said although demand for certain brands rose two to three times than usual, it was a one-off surge. Panic buying by consumers was driven by the fear that shops may close during the lockdown, he said.

Since people accumulated stocks of goods for two to three months, next month they would not have the same demand. “There wasn’t a permanent increase in demand.”

He added that even with the panic behaviour, the scale was vastly different from the trend seen in other economies as most people in Pakistan did not have a lot of disposable income.

“We observed a one-time surge in demand for certain products, while for others we saw there was a permanent change in habit in some cases. People are washing their hands more; they are becoming more aware of keeping themselves germs-free. Hence, for the goods range that caters to those needs, we are predicting that a certain percentage increase in demand will be permanent.”

Economic outlook

The global economy has been devastated by the Covid-19 outbreak and growth is set to shrink in the current year. In its initial estimates, the International Monetary Fund (IMF) predicted a 3% contraction in global growth in 2020.

However, later the Fund said growth was most likely to fall further as the coronavirus pandemic appeared to have hit economies harder than previously projected.

The situation in Pakistan is no different as the virus has taken a heavy toll on the economy. For the first time in 68 years, Pakistan’s economy is set to contract 0.38% in the outgoing fiscal year.

Malik said the performance of listed companies was among the key gauges of assessing the overall situation. He pointed out that the performance of listed companies in the March quarter was 23% lower than the same quarter of previous year, even though factories were shut for only 9 to 10 days in March.

“Due to the lockdown, a lot of businesses suffered and I believe that corporate profits for the April-June quarter will be much lower compared to the same quarter of last year and will also be down against the March quarter.”

Meanwhile, Hasan said the pandemic had disrupted economic activity across the world and Pakistan was also set for a contraction.

Responding to a question on whether the FMCG sector would emerge as a winner in this scenario, he said, “When there is a threat of recession, there are no winners. We are all dependent on people doing well, having jobs, having income, production and imports.”

He elaborated that the FMCG industry functioned with business activity, adding that there was consumption when people had employment. “I think it’s not that we [the FMCG industry] will not feel it. I think if there is a global recession, all industries will feel the pain.”

The writer is a staff correspondent

 

Published in The Express Tribune, June 15^th, 2020.

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