The 3Cs Driving Change in the CPG Industry in Recent Times
COVID-19, consumers' new demands and the comeback of corner stores
In the framework of any industry operations, most components such as consumer demand, sourcing, supply chain, distribution and product lines are fixed, and only a few components might be variable. The industry functions on certain standard principles and learnings that it has gathered over the past years. However, it would be an understatement to say that 2020 has been a year of the unexpected. All these 3Cs mentioned above have led to consumption and operational changes at a startling speed, taking the industry by surprise.
If you look at the CPI data over the last five years, you will see how India's inflation rate saw a spike in 2020 due to the pandemic and its resulting change in consumption patterns. While over the past few years, there used to be a steady, gradual change in components year-on-year, the pandemic caused a jolt-like rise.
As per Trading Economics, consumer spending in India decreased to INR 14,611.64 billion in the second quarter of 2020 (the lowest in the last three years) from INR 21250.99 billion in the first quarter of 2020. With job uncertainties and people's focus shifting to savings, their spends have mostly been directed towards essentials and health.
A look at 5-year CPI trend in India
3-year consumer spending data in India
Whereas, the WPI data shows a first annual increase in India's wholesale prices in August 2020 after 5 months, as a positive sign of slow recovery of the economy. However, there is a long way to go before we cross the 2017 bullish phase of WPI.
Shift in consumption patterns
Let's try to look at this from the end consumers' perspective. The lockdown created a lot of uncertainty and fear in the initial days, resulting in overstocking by end consumers, almost overnight. Products that had limited or no market earlier suddenly saw a spike in demand across the country. Products like hand wash, sanitizer, contactless thermometers, masks- disposable and reusable, oximeters, latex gloves and ventilators flew off the shelf. Consumers started preferring large packets of food, ready-to-cook meals, chips and biscuits. Also, Ayurvedic immunity boosters and tulsi concoctions found a new market due to the constant COVID threat that lingered upon people.
It was also quite interesting to see how some products like chyawanprash, which would never have a demand during summer, were instantly stocked out during months with soaring mercuric temperatures. With people working from home, tea and coffee sales grew manifold. At the same time, the usual performers such as ice creams and cold drinks took a bad hit in the months of March to May, with people staying away from cold food items. While new categories like surface disinfectants were created, the call for the Atmanirbhar Bharat movement also saw a surge in DIY kits for home repairs.
Brand & emerging brand play
Such sudden changes in consumer demands forced many brands to rethink the business they were in. However, we need to understand that this shift in consumer buying patterns occurred at a very challenging time with no labor, no factory and no movement of goods. Such a sudden demand and change in consumption patterns could only be supported by brands whose supply chains were not disrupted. Some regional brands that could ramp up their production capacity faster benefited largely during this period while it took the bigger brands some time to get used to the new normal and find their way around it. This led to a switch in consumer's brand loyalty.
Corner stores became the cornerstone of change
While the lockdown gave a serious hit to modern trade channels, the pandemic put corner stores in charge of fulfilling their neighborhood's immediate demands. Unsurprisingly, small retailers rose to the occasion and found a solution for the supply chain disruptions along with B2B distribution platforms. From revolutionizing the way they operated by quickly replenishing new products, taking orders on WhatsApp, digital transactions and offering home deliveries in a few hours to winning the loyalties of consumers who had earlier switched to e-grocery stores, the humble kirana store owner outshined everyone's expectations.
It will be far-fetched to predict how the end of COVID might look like, but certain things are here to stay—the ever-changing consumer needs, active hygiene measures and a continued dependence on the FMCG industry. So, what will it take for us to propel the growth of the overall industry in these times? Firstly, an acceptance and readiness towards change in power dynamics. Faith in local players and small manufacturers, because them coming forward and innovating has proven pivotal in the current scenario. With sanitation and hygiene taking centrestage, there is enough room for big brands and smaller manufacturers to play on the same field and serve a country of 1.3 billion consumers.
And, most importantly, unwavering faith in corner stores, who drive 88 per cent of the $800 billion Indian grocery retail category. Together, we can work towards a digital transformation that this segment is looking forward to.
All it will need is the fourth C: commitment.