FMCGs turn to online distribution as Covid forces kiranas to down shutters

Online as a percentage of sales for FMCG companies has touched 8-9 per cent for some firms versus 5-6 per cent a few months ago.

Fast-moving consumer goods (FMCG) companies are switching to online distribution as kirana stores bear the brunt of Covid-19. Nearly 13 per cent of kiranas were shut in April over March, the data from retail intelligence platform Bizom shows.

The trend is expected to be no better in May, as the combined problem of a liquidity and supply crunch as well as kirana employees suffering from coronavirus hurt business badly. India saw a sharp surge in Covid-19 cases in April and May as the country was hit by a second wave of infections.

Most in the frontline of operations, including retailers and distributors, were impacted by the spread of the virus, prompting many to shut stores, albeit temporarily. Companies say they see traditional trade bouncing back in the next few months. However, many have devoted themselves to ramping up their e-commerce operations, in response to growing digital adoption as well as a second line of defence to tackle FMCG distribution.

Industry estimates suggest that online as a percentage of sales for FMCG companies has touched 8-9 per cent for a few firms versus 5-6 per cent a few months ago. A year ago, online as a percentage of sales stood at three per cent.

“Online is a big focus area for us,” Mohit Malhotra, chief executive officer (CEO), Dabur India, says. “As a share of total sales, online contribution has touched 9 per cent for us. We see this as a growing trend, triggered in part by multiple waves of Covid,” he says.

In an investor call recently, Marico’s Managing Director and Chief Executive Saugata Gupta had said he saw the online channel contributing 10-12 per cent to the company’s business by 2024 from 8 per cent now. The online channel includes e-commerce operations and Marico’s direct-to-consumer initiatives.

The growing shift to online is highlighted in a just-released report by OkCredit, which is a network of apps aimed at digitising small and medium businesses, including kiranas. The network says it saw a drop of 6 per cent in active offline customers for groceries in March-April over February, as consumers migrated online. This trend could increase in the months ahead, OkCredit said, if companies didn’t step forward to help their retail partners.

“Small and micro businesses are struggling,” said Harsh Pokharna, co-founder and CEO, OkCredit. “For some, cash flows have been severely affected and for others customers have moved online,” he said.

Hindustan Unilever's Chairman and MD Sanjiv Mehta said small stores would increasingly become digitally connected.

“The general trade of the future will be different from what it is today. Smaller stores will be increasingly connected. They will adopt the science of retail to stay relevant. Our role will be that of facilitators—connect them digitally, help them with their assortment and inventory turns, so that small traders can increase their return on investment,” he said.

Pokharna says the decline in transacting merchants online had narrowed to some extent in the second wave versus the first wave of Covid, as small entrepreneurs had learnt the importance of digital adoption. Though preliminary, the sign was good, he said, in a market that had been upended by Covid.