Transform or Die
A typical lockdown day for Saugata Gupta, Managing Director of the Rs 7,315 crore fast moving consumer goods (FMCG) major Marico, is a series of Zoom and Microsoft Teams meetings. Most of them are about dealing with the enormous challenge of supplying essentials like Saffola oil and Parachute hair oil to consumers across the country. As traditional distribution networks have ground to a halt, the FMCG major has been desperately inking deals with third-party distribution companies to quickly create bridges to reach consumers.
The quickest way, Marico realised, was to set up a tele-ordering facility where call centre workers ring up retailers and take orders directly instead of going via distributors. Yet, in the midst of all the chaos, when Gupta looks at Marico's Q4 results - with 7 per cent dip in sales and 3 per centin volumes - he can't help think what else he could have done to reinvent the business and reduce risks. His answer so far: think hard, think short, and do it quickly.
Across India, in the wake of the Covid-19 pandemic and the lockdown, businesses, big and small, are seriously rethinking about how to transform themselves to survive the crisis. While companies such as Hindustan Unilever (HUL), PVR and Pidilite are looking at conserving cash to save themselves, for retailers such as Arvind, Croma and Titan, it's all about setting up a robust omni-channel business model. Mall owners such as DLF and Nexus Malls are preparing to go all out to reassure consumers that shopping with them is safe.
"The pandemic is a black swan event as one can't predict what will be the fate of people and businesses on the other side. However, I wonder whether organisations can move to a quarter-on-quarter planning cycle instead of annual plans. Risk management has to be given far more importance," says Gupta. Most large corporates are accustomed to working on three- to five-year plans and yearly budgets. Gupta is hinting at moving from long-term planning to thinking for the short term.
Gupta is not alone. Suman Saha, Chief Operating Officer, Raymond Apparel, backs short-burst planning cycles. The pandemic has made most apparel brands' decades-old strategy of planning for two major fashion cycles - spring-summer and autumn-winter - redundant. "We are a multi-channel brand company. Our way of doing business is seasonal. We walk a few months backwards in terms of actual demand; and it has been a successful model. We think what is going to be produced ahead of time and our channel partners tell us the quantity they need and we produce on that basis," says Saha. "Now, outlets are saying, orders are confirmed, but my demand has gone down. Therefore, the biggest re-invention for apparel brands will involve shorter market cycles. Companies will be forced to produce shorter lead time products or re-engineer the supply chain really well so that they are closer to demand."
That will mean greater complexity and more permutations and combinations of offerings through the year. Instead of spring-summer and autumn-winter, there will be summer, monsoon and winter collections in India, or even Diwali, Eid and New Year collections. The biggest pain point for most apparel brands has been pile-up of inventory. "When the lockdown was announced, we were creating a collection for July-August-September, which is autumn-winter. For this collection, our partners had booked in January-February, and we had confirmed orders. Going forward, we may need to delay our product ordering cycle to as late as May-June, so that we have a lot more inputs. If trends are changing, if consumer reaction is changing, this will help us factor in all that," says Saha.
Staying Relevant
While Marico and Raymond are looking at strategic tweaks to their business model, the rest of India Inc. is considering ways to re-imagine and re-invent the way they were doing business before coronavirus brought it to a standstill.
As health and hygiene become mantras on the other side of the lockdown, consumer goods companies are rolling out new product ranges. Marico has not just extended its brand Mediker to hand sanitisers, it has also launched Veggie Clean, a vegetable and fruit cleaning solution, which promises to remove germs, bacteria and chemicals present on surface of fruits and vegetables. Godrej Appliances is launching a high temperature washing option (which promises to kill germs) in semi-automatic washing machines. HUL has launched extensions for three of its brands - Lifebuoy Germ Kill Spray, Domex Wipes and Surf Excel Anti-Germ Wash Booster. ITC has launched Savlon Surface Disinfectant Spray and Savlon Hexa, a stronger hand sanitiser variant.
A bigger challenge for FMCG majors is re-imagining the supply chain and distribution network, which has come to a virtual standstill during the lockdown. For retail, hospitality or multiplexes, it is a question of survival. The retail sector, which accounts for 40 per cent of consumption, took a $30 billion hit due to Covid-19 in March. With the third phase of the lockdown, retailers have been out of business for all of April and much of May. According to the Retailers Association of India, by end-February 2020, business had dropped to 20-25 per cent and there has been a further dip of 15 per cent in the last month and a half. With earnings being virtually zero, and the new normal likely to be all about social distancing and people largely staying indoors, these businesses are desperately looking at ways to stay afloat. From contactless shopping in malls and consumer durables brands launching Covid-relevant products to food companies creating more eat-at-home moments and five-star hotels delivering exotic meal experiences in homes, Indian businesses are letting loose their imagination in order to stay relevant.
The biggest challenge for a lifestyle major like The Titan Company is how to attract a person sitting at home to buy a piece of jewellery, watch or perfume. Titan MD C.K. Venkataraman says his teams have been thinking hard to find ways to persuade people to celebrate occasions at home and dress up for the same. At a time when all its retail stores have been forced to shut down, the company is using the virtual route to woo consumers. "We are using videos to get people to experience our products such as jewellery. Once a consumer selects an earring online, one of our sales team members does a video demonstration. After the lockdown is lifted, we will also encourage home trials," he says.
"It is important for consumer goods companies to invest in analysing the changing consumer behaviour. Further, companies will need to understand various moments of consumption and their relative relevance in the post Covid-19 world," says Harsha Razdan, Partner and Head, Consumer Markets and Internet Business, KPMG.
The Virus Economy
Wearing masks, washing hands regularly with handwash and maintaining social distance have become a way of life. The writing on the wall is clear. The coronavirus pandemic will change the way people have lived so far. Health and hygiene products will become the mainstay of a consumer's consumption basket. From being just 1-2 per cent of an FMCG company's portfolio, the share of health and hygiene products is expected to increase phenomenally to 20-25 per cent. "We are looking at a more sustained play in sanitisation," says Gupta of Marico.
"While these are initial days, some early consumer trends are emerging. It is expected that there will be enhanced focus on nutrition and, therefore, demand for health along with wellness and hygiene products is expected to expand," says B. Sumant, Executive Director, ITC.
Keeping this trend of hygiene in mind, Godrej Appliances has also been re-imagining its portfolio. "We already have fully automatic washing machines which wash clothes at higher temperatures so that germs can be eliminated. We are now introducing that option in our semi-automatic washing machines too. We are also looking at introducing more storage in refrigerators, as going forward, people are going to stay more at home and will need more space to store food," says Kamal Nandi, Vice-President and Business Head, Godrej Appliances. Similarly, premium furniture brand Godrej Interio plans to launch multipurpose furniture. "A large number of people working from home will look for comfort, but at the same time, the tendency will be to conserve cash. We are trying to see if we can make multipurpose and adaptable furniture," says Anil Mathur, COO, Godrej Interio.
Re-imagining Distribution
HUL's sales in the fourth quarter of FY20 declined 9 per cent while volume growth fell 7 per cent. CFO Srinivas Pathak said in fourth quarter results meeting that half the loss in sales could be attributed to reduced stock levels at distribution locations as the company's primary distribution got disrupted, while the balance was from lower stock at the retailer level and loss of consumer demand. The country's largest FMCG company has been as impacted by collapse of the traditional supply chain and distribution network during the lockdown.
While FMCG players have tied up with various third-party service providers such as food delivery platforms (Swiggy, Zomato and Dunzo), cab aggregators and facility management providers of residential complexes to ensure their products reach consumers, there has been one clear realisation: the need to reinvent and make their existing supply chain and distribution networks less prone to shocks such as Covid-19.
The real heroes in this crisis are the humble kiranas. FMCG majors say their focus now will be to empower kiranas digitally. Sanjiv Mehta, Chairman and MD of HUL, says the post-lockdown era could bring a renaissance for the grocer. HUL already has initiatives such as the Shikhar app, which enables a grocer to place orders. Mehta says the company will encourage more and more grocers to order on Shikhar. "As things normalise, Humara Shop (an initiative that helps kiranas go digital) will become strategic?we will be looking at how to reach consumers in the best possible manner."
ITC's Sumant says though a significant number of consumers will shop on digital platforms, the kiranas will remain in the limelight. "The use of digital solutions in distribution and manufacturing will gain further momentum." Gupta of Marico is upbeat about the tele-calling service. "We have tried out various ways of reaching out to consumers but I find tele-calling to be the most scalable."
Traditional supply-chains in India, says Siddharth Jain, Partner, Kearney, had been over-indexed on efficiency without thinking about risks. "Covid is forcing companies to relook at that balance. The current conventional wisdom regarding just-in-time inventory and flow-through replenishment works for business as usual. But as everyone is finding out the hard way, such models cannot handle significant supply chain disruptions. Maintaining higher inventory levels may cost 0.3-0.7 per cent more; yet, in a crisis, higher inventory levels pay off in terms of customer satisfaction and competitive positioning."
Anil Talreja, Partner, Deloitte India, says FMCG companies will have to ensure that no demand disaster happens. "If demand goes up and supplies are not enough, there will be inflation, which is what India doesn't want."
Re-inventing Retail
None of us ever imagined that one will need an appointment to walk into a mall or a store. But that's soon going to be reality. As malls and high-stores get ready to welcome back guests post the lockdown, they will allow a limited number of people into the store at a given time to maintain social distancing norms. For starters, stores will operate at 50 per cent staff strength to maintain social distancing and open for just 8-12 hours. "We already have technology to monitor how many people have come in. In escalators, people will be allowed to get on at alternate levels. All buttons in lifts will be covered with plastic and sanitised every hour. In food courts, seating will be reduced. So, every alternate table will be either taped or taken away so that social distancing is maintained. We will have remote ordering of food," says Dalip Sehgal, CEO, Nexus Malls.
Malls will follow staggered opening, says Pushpa Bector, Executive Director, DLF Malls. "First, apparel shops will open, followed by electronics outlets and food courts in a limited way. Movie halls and children entertainment will open much later."
"To ensure physical distancing, we will follow cross-allocation of seats so that distance is maintained. Movie shows will be scheduled in such as a manner, that entry, intermissions and exits of two shows dont occur simultaneously," says Alok Tandon, CEO, Inox.
Shopping at malls will offer a totally different experience in future. Contactless shopping will be the new norm. Abhijit Ganguly, MD, Puma India, says consumers will not be allowed to touch and feel products at stores. "If they want to see the products, our staff will open and show it to them." That's not all. Apparel brands will get rid of trial rooms and you will not be able to try out a lipstick or a nail paint in a cosmetic store prior to buying it. "Payments will be made touch-less. The physical bill will be replaced by e-bills," says J. Suresh, MD & CEO, Arvind Lifestyle Brands and Arvind Retail.
Malls and high street stores have little option but to invest in social distancing and zero contact measures after they open for business. However, they also need to reconcile to the fact that there will be low footfalls and low revenue for three-six months if not more. Just to make their spaces safe will imply a 20-25 per cent increase in costs. This scenario has led retailers to ramp up their omni-channel infrastructure as consumers will increasingly want to shop from home. "Omni-channel will leapfrog post Covid," says Titan's Venkataraman.
"Click and Collect will be a major initiative that we will launch and promote. We are leveraging WhatsApp for business where we will send consumers the product catalogue of the store close to them. Consumers can browse and place orders, and we will deliver it home," explains Arvind's Suresh.
Consumer durables retailer Croma is also working to strengthening its omni-channel network. It is launching an app which will enable consumers to view the inventory across stores. "We have the ability of making inventory available at a specific store. We are also promising three-hour delivery if the product the consumer wants is available at the nearby store," says Ritesh Ghosal, CMO, Croma. The electronics retailer is also planning a video chat option where the consumer will be able to walk the aisles of the store, engage in a consultation and close the sale.
For Godrej, a small portion of appliance sales happen on ecommerce platforms such as Amazon and Flipkart. "We are creating digital content for our trade partners so that they can start generating leads digitally. We are also training our dealers to create their own digital platforms," says Nandi.
As brands re-invent and re-imagine, they are also aware of the fact that Covid will also lead to pay cuts and job losses, which will put brakes on consumption. "Future innovations have to be in the value space, lower price-points," points out Titan's Venkataraman. But the fashion-conscious need not worry. Apparel majors such as Raymond, V-Mart and House of Anita Dongre are looking at creating a business out of masks. Soon, one would get to buy masks that are coordinated with one's outfit.
Conserving Cash
The pandemic has forced cash-rich companies to think about conserving cash and protecting their business. Managing liquidity is priority. At the Q4 results announcement, HUL CFO Pathak laid down a five-pronged strategy to navigate the Covid-19 challenge. He said supporting its people, protecting supplies, servicing demand, contributing to society and maintaining and protecting its financial model would be the company's topmost priorities. "Our strong balance sheet and cash positions will be a source of competitive advantage for us. We are systematically reviewing all areas of cash generation and revaluating all costs in the light of the circumstances so that we can invest in the best opportunities. We continue to set a high ambition of savings across the value chain."
Mehta of HUL, says the company's ethos is frugality. "We have a very sharp focus on each line of our P&L, we look at it closely to ensure that it adds value and drives value for the business?costs that don't add value will be cut down." Abneesh Roy, EVP, Edelweiss Securities, says distribution costs of HUL will increase in Q1FY21. "However, lower ad rates, brutal cost optimisation and synergies from the GSK acquisition will more than compensate for that, keeping it on the EBITDA margin expansion trajectory."
Ajay Bijli, Chairman, PVR, says his strong balance sheet has been a saviour. The multiplex business has come to a standstill. "You need to make sure your balance sheet is strong to confront an eventuality like this. I have kept my business healthy, we have stuck to the core business of something Indian consumers love, watching movies." In the future, multiplex players such as PVR and Inox plan to take various measures to offer a contactless movie-going experience such as doing away with box office and curtailing its food and beverage (F&B) menu. Though F&B contributes close to 35 per cent revenues, this will also mean lesser investment.
Conserving cash has become important not just to mitigate risks but also to invest in appropriate businesses in future, says Bharat Puri, MD, Pidilite Industries. Puri is confident that Covid-19 will throw up opportunities for Indian businesses globally. "From China being the world's factory, companies will have factories across the world to mitigate risks and, therefore, one has to be able to identify categories which will enable one to have global scale."
Reimagining Food
Social media is flooded with posts of innovative food experiments. From culling out innovative sushis to giving a tangy Mexican twist to the humble pav bhaji, people, right through the lockdown, have been reinventing their culinary skills. These social media posts have given food companies ideas about coming up with options that will create more dine-at-home experiences. After all, dining-out in restaurants is likely to be out of bounds for a long time to come.
"People are cooking a lot more at homes than before," says Kanwaljit Singh, Managing Partner, Fireside Ventures. Singh considers this an opportunity for ready-to-eat and ready-to-cook products. Imagine a couple celebrating their 25th wedding anniversary in their homes all by themselves during the lockdown or even after, since going out may not be particularly safe. Can any of the food majors come up with a ready-to-cook menu comprising starters, main course and desserts to make their special day even more special? Sumant of ITC says their range of ITC Master Chef Frozen snacks, put together by chefs of ITC Hotels are well placed to address such trends. He says ITC is working on a host of innovations to cater to the rising home-cooking opportunities.
Gupta of Marico agrees that demand for healthy ready-to-cook meals is going to rise as people spend longer hours at home. "The number of Saffola moments will rise and we have to see how we can leverage these home-cooking opportunities," says Gupta. Sahil Gilani, Director (Sales and Marketing), GITS Foods, which offers an array of ready-to-eat and ready-to-cook options such as dosa batter, dal-makhni and rice and so on, says sales have doubled during the lockdown. "There were myths around packaged food being unhealthy. A lot of these misconceptions would have been busted during this period," says Gilani.
Apart from convenience, a more important criteria for a consumer will be hygiene standards. Consumers, of late, have been sceptical about meat following an advisory not to consume it unless they are doubly sure about the quality and hygiene levels of the slaughter house. Vivek Gupta, Co-Founder of online meat delivery platform Licious, says he has acquired 1.5 lakh customers in the last two months on the premise of a simple promise that his products are safe and hygienic. He says demand is double the pre-Covid times now, but they are able to fulfil only 30 per cent of orders. "We don't know how much pent-up demand is there. Our revenues have grown two times and I don't even know the extent of demand we are missing out on." Gupta of Licious plans to launch ready-to-cook biryani and cold cuts.
In fact, Singh of Fireside Ventures points out nimble and agile start-ups such as Licious or iD Fresh stand to gain the most post-Covid because of their capabilities to respond to market demands faster than an FMCG major constrained by elaborate processes. "We will see start-ups becoming mainstream."
One thing is clear. The future of consumption as we know it today is surely going to be re-shaped and companies are trying hard to stay relevant in the new normal.
@ajitashashidhar; sonalkhetarpal7
