Covid-19 crisis may lead to emergence of new FMCG products: GCPL MD

As economic activity stagnates due to the government’s lockdown in the wake of covid-19 crisis, 100-year-old conglomerate Godrej Group is talking to the government on how to work through production and supply chain constraints for its FMCG arm Godrej Consumer Products Ltd. GCPL is awaiting the government’s approval to resume factory operations, albeit with 50% of its manufacturing and distribution workforce to ensure availability of essential goods and minimize the impact of the lockdown, both for the consumer and the company.

In an exclusive interview with Mint, Vivek Gambhir, Managing Director and CEO of Godrej Consumer Products Ltd. said the lockdown has significantly impacted the FMCG sector and the covid-19 crisis may ultimately lead to an emergence of new FMCG products, a change in consumer behaviour and a shift in the market’s focus to health protection and hygiene. In order to get the business back on track, GCPL said the company will need to make certain commitments to the government. Edited excerpts:

Due to the Covid-19 crisis and the lockdown how badly is the FMCG sector impacted and what is the new strategy adopted by Godrej to maintain the growth momentum at this stage?

Like all the other sectors, the consumer goods industry will also be significantly impacted simply because the markets have been shut down over the last 10 days or so. There has been no distribution in the market and consequently productions have also been shut down. The extent of the impact will depend on how long this crisis persists. Within categories, the discretionary ones could get more impacted than staples in the near term. And we will also see new habits and changes in consumer behaviour. As a strategy, going forward, our first priority is to get the supply chain back on track, get production back and running and ensure availability of essential items. The focus is to resume production activities of essential items. Our first priority is to keep our team members healthy and safe. At this stage, availability takes precedence over pricing. In recent days, the supply chain has been disrupted. This is not a surprise, considering the unprecedent nature of the lockdown across the country. The government is well aware of the challenges and in line with its commitment to ensure uninterrupted supplies of essential items, it is working closely with the industry to get the supply chain back on track. So, after a shutdown of a few days, we are ramping up our manufacturing and distribution again. This will be at a reduced capacity.

What is Godrej doing to get the production activity back on track?

Basically, we are working with the government to be able to get the necessary permissions required to start up some of our factories and get the permission to resume distribution. The permissions have been mostly coming into place over the past 2-3 days. The ministry of home affairs has revised guidelines to ensure production and distribution of essential items. All our team members working on the front line, in our factories, with our distributors and with our transporters are Covid Warriors, who are doing this in national interest and are serving our country by producing essential items. In line with government guidelines, we are committed to dramatically reducing the number of people involved in our manufacturing, warehousing and distribution by 50%. The biggest challenge is to be able get adequate laborers to be able to come and work in the factories. We are working with the government there also to try and see what measures we can take to allow movement of workers. We are also working with our transporters to change the practice of two drivers per truck to one driver per truck, thereby reducing 50% of truckers. For those workers who need to travel, we are arranging private vehicles or company provided transport with not more than 50% capacity utilisation per vehicle.

Hopefully, over the next few days we will see a higher movement of workers while respecting all the necessary lockdown norms. That’s the primary focus to tide over the current crisis. Secondly, depending on how long it takes the crisis to return back to normal, we are preparing some recovery plans in terms of what new product categories might emerge from this. I think there will be a greater focus on health protection and hygiene and we are putting in efforts to make a stronger presence in those categories. We also see a greater amount of push on online sales; so, we are looking at our online strategy to see if we can accelerate that in a few areas. Overall, as a result of this crisis, there could be some shifts in for the larger organised players... we are already seeing some shift in “do-it-yourself” kind of products, etc. So, the strategy to tide over the crisis is to ensure a ready availability of products and then, as the situation improves, to figure out our bounce-back plan.

How accommodative is the government with regards to preventing supply chain disruption?

The government has clarified in the revised guidelines about the transportation of essential items and about the definition of essential and non-essential items. The government is extremely responsive and accommodative. It is clear that the steps being taken are to resume operations; for example, the government is also open to considering giving “passes” to top 50 companies to responsibly manage and run their end-to-end supply chain operations, unimpeded by local authorities. This will be very helpful if implemented. There will be some commitments that we too have to make to in terms of only having half-the-number of manufacturing people, we can request for changing shift from 8 hours to 12 hours and having half the number of distributors in the market etc. Along with this, if the government can acknowledge that all the frontline workers who are ensuring that essential items are available, are doing so in national interest, it will help remove fear from their minds and enable them to report to their work locations with higher responsibility.

Can you quantify in terms of laborers, what is the impact on the workforce engaged in your manufacturing activities, what percentage of staff are now working and secondly in terms of pricing of products is there any change? Also, if the lockdown continues what kind of impact it may have on companies like Godrej Consumer Products? How will you ensure that there is no hit on revenues?

All our office space staff are working from home. Within factories currently about 20-30% of our workforce are working in our factories. Distributors are in very small numbers right now. The hope is that over time as supply chain ramps up, we will get about 50% workforce in factories and 50% capacity in the distribution network. That way if we are able to get 50% there in terms of key workforce we will be able to get adequate supply. Like the rest of the industry, we have seen a significant impact on sales from the lockdown. This is clearly a crisis situation for the country and our focus right now is on the safety of our employees and ensuring ready availability of essential items. In terms of impact estimate, we don’t have an answer right now because it will all depend on how long the crisis continues. I don’t have numbers from India but what I can tell you is that if we look at the reports from China, if that is an indication, the data for January and February, assuming a two-month lockdown, showed retail sales went down by 21%, out of which the apparel industry went down by 31%, cosmetics went down by about 15%, personal care and home care went down by about 7% (this had less impact because of higher sales of soaps and sanitizers). The range is between minus 5% to minus 30%. With regards to pricing, our entire objective right now is to ensure product availability. In fact, in sanitizers we have reduced the price from Rs. 75 to Rs. 25 in line with the government guidelines. We had a plan a couple of months ago to increase soap prices because raw material prices had gone up significantly. But we held on to the pricing. So, given the situation the country is going through, I think there will be no pricing action right now. We are prepared to take a hit on profitability. We have a healthy financial position and hence we have the ability to tide over the crisis as the need of the hour is product availability.

What is that one thing that you feel the government should do improve the situation?

In the near term, the biggest challenge for the government will be to ensure translation of the guidelines with consistency and uniformity to ensure enforcement of the guidelines at the local level. If the processes are streamlined, it will help things move faster. The need of the hour is to act quickly to ensure adequate supply and that’s how the government can help the FMCG sector.