Intermittent lockdowns in states disrupt FMCG firms' momentum, July output

FMCG players had started to re-establish their supply chains in May and gradually ramped up as markets reopened, which had created some momentum

FMCG companies, which saw sales recovering to pre-Covid-19 levels in June, are uncertain about sustaining the momentum in July due to intermittent and localised lockdowns in several parts of the country which have impacted manufacturing and supply chains.

As the industry oscillates between lockdown and reopening in various states, companies such as Godrej Consumer Products Ltd (GCPL) and ITC are banking on inventories stocked up to maintain supplies to the market.

They see their July production being impacted, with some of their local units being hit by restrictions on labour movement, and their warehouses and vendors coming under lockdown zones declared by states to curb the spread of Covid-19 cases.

"This is a very tricky situation and there is no debate that the intermittent lockdown is disturbing some semblance of rhythm that we have got into the supply chain," GCPL chief executive - India and SAARC Sunil Kataria told PTI.

According to him, this is a "very fluid situation" as "uncertainty is very high" about a particular area or region, that could be put under lockdown by the authorities.

"These are not uniform lockdowns. The earlier lockdown was a pan-India lockdown--one lockdown for all. Now, these lockdowns are very dynamic and fluid as they are happening in select pockets. Now you do not know about the pockets and whether or not any unit of yours would be impacted. Moreover, some are for seven days, 10 days or 15 days and uncertainty is quite high," Kataria said.

ITC too expects new lockdowns to disrupt production and supply.

"The lockdown announced in different states, which is required to contain the spread of the pandemic, can cause temporary and localised disruptions to manufacturing and supply chain," said a ITC spokesperson.

FMCG players had started to re-establish their supply chain in May and gradually ramped up as markets reopened, which had created a momentum.

"But now suddenly, the second wave of lockdown has hit us, it will definitely create a disturbance. We had hoped it to not have happened," Kataria said.

When asked if there could be an impact on the company's July production, he said, "By end of June, (the company had reached) around 85 to 90 per cent production but July would be different because of several lockdowns happening."

He, however, said GCPL has a "decent amount of inventory to take care of that" disruption.

Similarly, the ITC spokesperson said the Kolkata-headquartered company is taking efforts to ensure adequate stock availability ofitsFMCGproducts in the market across these states.

According to industry experts, FMCG companies should be ready to handle the impact of such localised and intermittent lockdowns as these are likely to continue till there is a decline of the Covid-19 cases in the country.

"FMCG companies should be prepared to manage these disruptions by closely watching the Covid-19 case trends across key markets and planning their stocking and production accordingly to address these uncertainties better," said EY Partner and National leader (Consumer Products and Retail) Pinakiranjan Mishra.

Another aspect of these localised lockdowns is the impact on labour movement to factories.

"We were going for local labour force as migrant labourers were not available. But unfortunately, this intermediate lockdown has created a separate problem of its own," Kataria said, adding while the labour shortage was high in May it had improved in June.

According to a recent report from the data analytics firm Nielsen, the FMCG sector has touched pre-Covid-19 level sales in June, primarily helped by a rebound in rural consumption and sales from traditional channels.

Both urban and rural sales are growing but the recovery/sales from the undeveloped semi-urban/rural quarters are much faster and traditional trade channels such as neighbourhood and kirana stores have scored over modern trade outlets as retail outlets and hypermarkets, said Nielsen.

Though the country is presently going through Unlock 2.0 phase but several state governments including Bihar, Tamil Nadu, West Bengal and Assam have imposed localised lockdowns. Besides, several cities such as Bengaluru and Pune are also under lockdowns after a rise in the number of virus infections.