Covid-19: FMCG cos battle ready, but logistics a concern

While fast-moving consumer goods (FMCG) makers, especially those manufacturing essential items such as handwash and sanitisers, are putting their best foot forward to keep factories up and running despite the Covid-19 outbreak, interstate transport and logistical hurdles may disrupt the supply chain, according to Vivek Gambhir, managing director and chief executive officer of Godrej Consumer Products Ltd (GCPL).

Gambhir, who leads the FMCG arm of the Godrej group, said the industry had sought greater clarity from the central government on the norms governing interstate movement of goods and people. Many state governments have sealed their borders and are preventing goods and people carriers from crossing over. This has posed a challenge for consumer goods makers since a lot of their raw materials come from other states and the finished products are also shipped to various parts of India from a particular manufacturing site.

In an interview with Fortune India, Gambhir noted that while there may be a short-term spike in demand for consumer products like handwash and sanitisers as people procure in bulk fearing a complete shutdown, long-term demand was likely to get impacted in tandem with any potential larger economic slowdown. Edited excerpts:

How is GCPL trying to manage the current situation as far as its operations are concerned?

The situation is quite dynamic and unpredictable. We have our plans in place along with a standard operating procedure for business continuity. Our No.1 priority right now is to serve the customer; ensure sufficient supply for high-demand items like handwash, sanitisers, and wipes. We are ramping up production capacity to cater to the demand at our end and also producing more via third-party manufacturers. We are building excess stock and giving them to our distributors and also giving them credit to help tide over the current period.

We are also doing whatever we can for the protection of our employees. Most of our employees are working from home and those who are at the factories have been put in staggered shifts with multiple batches of workers to prevent too many people congregating at the same time. Members of our frontline sales team are being given extra incentives and benefits to encourage them to use masks and sanitisers, and private transportation wherever possible.

We have a huddle each day in the morning to chalk out plans and in the evening to review operations and do course correction wherever necessary. We have also made as many as 20 WhatsApp groups for various purposes, ranging from legal ramifications to mitigating the business impact on account of coronavirus. While the top-down direction is important, we are also empowering ground-level executives to take swift decisions in response to the changing environment.

Finally, we are also trying to support the community through initiatives like the #ProtektIndia movement, which seeks to raise awareness about the importance of washing hands frequently and also by distributing free masks and sanitisers to municipal workers in Mumbai and Thane.

Are your factories fully operational at present?

Most of our factories and warehouses are operational at present. But there is a challenge in interstate transportation due to the lockdown in various states. Much of the raw materials, including packaging material, come into our factories from other states; and the finished products are also shipped to different states. Through the Confederation of Indian Industries and the Indian Beauty and Hygiene Association, we have asked the central government on clarity on norms governing interstate movement of goods and people, especially those involved in the manufacturing of essential items.

For instance, we have a soap factory in Baddi where workers come from Haryana and Punjab in buses. These buses are being stopped at the border and the workers can’t reach the factory, which is challenging. I am sure things will settle down soon. If grocery stores have to remain operational, their stock needs to be continuously replenished, which won’t be possible if the supply chain doesn’t work.

We have enough supply in the system for the next one or two weeks. But assuming the current situation extends beyond two weeks, we may start seeing some shortages if these issues aren’t addressed.

How has demand spiked for essential products and how do you see it shaping up in the medium to long term, coming out of the present crisis?

There have been temporary spikes in demand for some products, where people have been buying in bulk in anticipation of a total shutdown. But ultimately, in any economic downturn the normal prescription for recovery is spending encouraged by the government. But due to the current health concern, the government is asking people to stay at home, leading to a situation where we will shut down and then restart economic activity. This will have an impact on consumer demand as economic activity contracts.

The government will need to think hard on how to chalk out a strategy for economic recovery and it may need a massive fiscal stimulus like what the U.K. and the U.S. governments are planning. The government will need to take some bold and quick steps because if the shutdown lasts beyond two to three weeks, it can be quite a big economic shock.

What is the market situation like in other countries where GCPL operates?

We have seen increased demand for handwash, sanitisers, and wipes everywhere. Though African countries (except South Africa) have seen lower coronavirus cases, the consumer sentiment has turned negative and our teams there are reporting lower footfalls in stores. We are encountering a similar situation in Indonesia as well.

What is the estimated impact of the current situation on GCPL’s financials going to be?

We had some assumptions which don’t hold true any longer. As far as the first quarter of the next fiscal is concerned, I think we can recover if the market shutdown doesn’t last beyond the next two weeks. But it will be difficult to say if it extends to the next four to eight weeks. In such a dynamic situation it is difficult to have an informed point of view.

The focus right now is on serving the customer, protecting our brand franchise, crisis planning, and learning new consumer needs for innovation in the future. For example, we have seen demand for larger packs in India in this period and also a bump in online sales. We are also seeing if we can come up with some products in categories like hair colour, which are DIY (do-it-yourself) products, for those preferring to stay indoors.

We are confident that with our inherent strength and strong balance sheet we will be able to emerge strongly from this. The larger concern is about small and medium businesses, who don’t have a strong balance sheet. The government might need to offer some liquidity support to them.