FMCG SECTOR
Compiled by Yamini Sequeira
CONSUMPTION UNDER SCRUTINY
Shiyan Jayaweera hopes that the FMCG sector will see consumption improving
Q: What are the unprecedented challenges that the fast-moving consumer goods (FMCG) sector is facing due to the prevailing economic and other crises?
A: As a result of the COVID-19 pandemic, FMCG businesses initially faced distribution challenges. However, these were soon overcome as both these concerns and consumers were able to adjust – and consumption levels began to recover.
But consumption patterns did change due to new behavioural trends such as working from home. And certain categories such as beauty and grooming were impacted more adversely than others, due to reduced social interaction and mobility.
Since purchasing power has declined as a result of the economic crisis and inflation, consumption levels have been affected and consumers have exited certain categories in some instances. This has become an issue for new brands because consumers are curtailing their spending to the bare essentials.
The FMCG sector also faced logistical issues due to the fuel shortages and faced difficulties in getting products to market. And consumers encountered issues in accessing certain product categories such as nonessentials in personal care where online delivery options weren’t available.
Problems in securing raw materials and the depreciation of the rupee led to supply shortages and cost escalations for manufacturers. This impacted prices and resulted in a further drop in consumption.
Q: Do the same marketing rules apply in the current stressed environment – or are businesses innovating?
A: Marketing rules have definitely changed due to the economic crisis. Traditional models of consumer persuasion, equity building and loyalty have shifted to a value-based model.
Consumers are seeking more value-based offerings regardless of their regular brands; and in some instances, they have been willing to compromise on quality in search of better value.
To retain their customer bases, marketers have innovated by introducing new sizes (buddy packs), diverse packaging formats (refill packs) and value engineered options. The consumer uptake of these initiatives has been positive; and this trend looks set to continue in the medium term.
Q: How can FMCG businesses mitigate the impact of the downturn on sales?
A: Marketing needs to take the lead role and build the value equation for consumers to mitigate the impact on sales. Both innovation and communication play a part in this.
New launches and brand messaging have switched from higher order benefits (premiumisation) to communication about value for money and delivering the right price point.
Digital has become a key communication channel since word of mouth and referrals have gained importance. Consumers are now seeking alternative products and options, and managing brand sentiment on social media channels has become one of FMCG marketers’ key performance indicators (KPIs).
Q: So what challenges lie ahead?
A: The economic situation remains a key factor. Inflation needs to be brought under control, the provision of utilities should be normalised and supplies in the medium term must be ensured to reduce the burden on the public.
Huge fluctuations in exchange rates have to be managed; and foreign exchange must be made available to manage and negate more cost escalations for manufacturers so that further price increases can be avoided.
Q: What would be your quick fix for the economy?
A: Bringing back stability will be a top priority. IMF board level approval, which will enable access to other funding instruments, would be the quickest solution. However, local industry must also be stimulated through access to capital and better utilisation of state expenditure to encourage growth.
Q: Sustainability of resources is becoming a key priority for organisations and nations alike. What are the main areas that need a sustainability focus in the manufacturing process?
A: With climate change being at the top of everyone’s agenda, the focus on sustainability by all stakeholders has never been stronger for the FMCG sector.
Many elements of the manufacturing process could benefit from a focus on sustainability and even help drive triple bottom line benefits.
A sharper focus on resource and energy sustainability – especially initiatives that promote efficiency through reduced usage – will benefit many manufacturers directly. It will also have the added benefit of enhancing corporate brand image for organisations that are doing their part to support the larger climate change agenda.
Q: And finally, how do you see fiscal year 2023/24 turning out for the FMCG sector?
A: For our sector, 2023/24 is set to play out in much the same way as the last 12 months – especially as the economic crisis looks set to continue, albeit at a less severe level.
As a sector, we are hopeful that the worst is over and consumption will increase gradually as the year progresses.
However, the impact of the income tax increases and proposed utility tariff hikes on consumer spending – and overall consumption – is yet to be seen. They could have a significant influence on certain FMCG categories such as personal care, impulse food and beverages, and so on.
