Navigating the uncharted : COVID-19 and beyond – ETBrandEquity.com
This situation is likely to improve as the supply chain constraints get mitigated; however, companies will have to be prepared for large scale downtrading besides shrinkages in consumption and therefore consider its impact on their revenue. By Sanjay WaliA young couple in Chandigarh arguing about the items that they need to remove from the shopping list; this is something that they have never done before. There are millions of couples across the world, who given the uncertainty, have started this unpleasant practice of pruning their shopping list. For most countries around the world, COVID-19 pandemic is fast turning into an unprecedented health and economic emergency. While many countries have resorted to a lockdown in order to flatten the curve; most are struggling with balancing the health concerns with that of restarting economic activity. The situation in India is no different, after a prolonged lockdown of 50 days, the government and corporates in India are treading cautiously towards restarting economic activity, whilst keeping the pandemic under control. How well our country navigates through this tough situation is anybodys guess; but it is evident that it will have a massive impact on our GDP. We are staring at high double-digit unemployment rates. Many agencies have projected a low growth ranging between 0.2% to 1% for Indias GDP, some are even suggesting a de-growth. Clearly, it is time for the Government and the Industry to join hands and fight this war together.
Studies indicate that whilst there has already been an impact on the working-class income; uncertainty is making the middle class very circumspect about their future earnings. This has started to show in the consumption patterns across categories. According to a study done by Bain and Company, almost 2/3rd of the households are reporting a decline in spends on household consumption. Whilst essentials after the initial stock-up period are showing signs of decline; non-essentials are staring at a shrinkage in consumption ranging between 15% to 60%. However, we cannot attribute this shrinkage in consumption to demand contraction only, but it is a function of broken supply chain leading to non-availability of products as well. It is estimated that roughly one third of the consumption shrinkage is a function of non-availability. This situation is likely to improve as the supply chain constraints get mitigated; however, companies will have to be prepared for large scale downtrading besides shrinkages in consumption and therefore consider its impact on their revenue.
Given these challenges, how should the FMCG companies approach this situation? What approach should Sales function adopt? I dont think there is any one right answer for the companies, however there are some indicators that should help us draw up the contours of a plan, which will get populated as new trends emerge along the way.
Consumption: Will the consumption follow a V shaped, U shaped or an L shaped recovery? Well now it appears, given the size of our country, the variability of impact, local (district- wise) considerations, etc., different parts of the country will have different paths to recovery. Besides, as the states lift lockdown restrictions some may witness high incidents of cases reported, forcing some areas to clamp down and re-introduce lock down. Therefore, it would be prudent to assume that we will probably see a W shaped recovery. Which means that we need to recraft our supply chain in such a way that allows flexibility and modularity in operations.
While these are some broad indicators, what specific action points emerge for the Sales function? Let us start by acknowledging that we are facing two very distinct set of problems/opportunities in terms of time frames ; near term consideration has to be on how to manage this crisis , while in medium term we will have to be prepared to reimagine and redesign our processes and structures to address the New Normal. Well, these are very different set of tasks, calling for different skill sets and therefore it is imperative to form two distinct teams. These teams ideally should be cross-functional teams, given the interdependencies and implications on other functions.
Crisis Management: This must begin with ensuring safety and well being of our people, including our partners and associates. Next on the agenda should be how to fix the supply chain; rendering the supply chain modular with the ability to quickly move supply nodes close to consumption nodes needs to be examined. This is also a stage where we need to focus and exercise some painful tradeoffs. Focus on key SKUs rather than on the portfolio, focus on the larger formats rather than the entire coverage. Focus more on residential areas as opposed to commercial hubs. Prepare to roll out low priced/ low cash outlay SKUs in price sensitive markets. Ensure listing with e-commerce players, this can help in addressing the inefficiencies of general trade. Last on my list, but perhaps most important is to manage cash flows.
Redesign: This team needs to start with a set of hypotheses on emerging trends (Consumer, Channel, shopper). This needs to be validated with data as we go along, with an intention of picking up locked-in trends at an early stage. For example, how should we treat small towns and Rural areas? Given reverse migration from cities to villages/ small towns and the fact that the impact of the virus seems to be muted in Rural areas. Does this call for a major redesign of Rural GTM? What changes do we need to make in Urban areas? Going digital is no longer an option, it is an imperative. Therefore, sales teams will now have to deal with multiple partners (Channel, supply chain, finance, technology-commerce, etc.). Does this call for re-skilling? Should we be looking at different structures?
We need to actively look for opportunities and areas that have potential to deliver a competitive advantage. I believe that difficult circumstances end up separating Winners from also ran. We should not let a good crisis go waste.
-The author is (National head,sales and distribution) of Godfrey Phillips India. The views expressed are personal.
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Navigating the uncharted : COVID-19 and beyond - ETBrandEquity.com