Capacity utilisation across FMCG plants may rise as truckers return

The throttled capacity utilisation across FMCG companies is likely to ease in the coming week owing to increased availability of trucks after the Centre allowed transportation of both, essential and non-essential items.

While there was no restriction on movement of essential items earlier, companies faced a major challenge in procuring raw materials and packaging. Truck scarcity added to their woes. According to the Federation of West Bengal Truck Operators Association (FWBTOA), out of a total of nine million trucks in India, only 4-5 per cent are currently operational.

Industry officials feel the new move from the Centre will help address both procurement and supply of finished products to some extent.

“I think things on the logistics front will improve in the next one week which in turn will help improve operational efficiency in the plants. Although production cannot be at the normal level, I anticipate capacity utilisation to improve from the current level of 10-15 per cent to 30-35 per cent,” Mayank Shah, senior category head at Parle Products told Business Standard.

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Industry officials noted that owing to ambiguities around defining essential items, issues on inter-state and intrastate movement of trucks, raw material procurement and availability of workers, companies were faced with both production and supply issues.

“While the Centre and states had allowed movement of essential items earlier, there are several non-essential items that go into making an essential item. Previously, trucks were reluctant to move these raw materials as there wasn’t clarity if they were permitted. But now I think it will be easier to procure raw materials and improve operational efficiency at the plants,” an industry official said.

According to an ITC spokesperson, a “few more days” will be needed for the entire eco-system and processes to be streamlined for movement of essential goods.

Companies like Emami Agrotech, which earlier had shut its plants due to scarcity of workers and transport is also reopening them as it feels logistical challenges can now be addressed to some extent.

“We are reopening our plants in a phased manner. First, we will start with dispatches and based on how things improve, we will take a call on improving production,” Aditya V Agarwal, director at the Emami Group told Business Standard.

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Emami Agrotech has reopened its plant in Jaipur in Rajasthan. Two others in Haldia, West Bengal and Krishnapatnam in Andhra Pradesh are expected to commence operations soon.

Over the past few weeks, all FMCG companies had either reduced production drastically owing to scarcity of labour and transport or temporarily shut units.

However, though the Centre has allowed transport of non-essential goods, companies are keen to stick to manufacturing essentials like packaged food, hygiene products and items of daily use as industry officials feel there is a huge backlog in the market that needs to be addressed first.

“Our effort is to ensure that consumers during these trying times are not inconvenienced on account of shortages and unavailability of essential products. We have redoubled our efforts to ensure a heightened level of precaution and have implemented strict protocols for safety, personal hygiene and sanitation in these select factories and for our salesmen and value chain partners,” an ITC spokesperson told this business daily.

Coca Cola is also taking steps to make beverages available.

“We are making every possible effort to ensure our beverages reach our consumers in complying to the local government’s regulations and safety of all our employees” a Coca-Cola India spokesperson said.

Truck operators, however, feel state governments also need to come up with clarifications over the movement and classification of essential and non-essential items.

“The police is a state subject and thus, states also need to clarify on the movement of trucks. I think this way, there will be more confidence in the system and drivers can be made available,” said Sajal Ghosh, general secretary of the FWBTOA.

FMCG majors forced to scale down operations over Covid-19 lockdown

Lack of clarity on operations in the wake of lockdown measures coupled with manpower shortage has disrupted operations of FMCG majors like HUL, ITC and several others resulting in full-fledged factory closures to limited manufacturing of even essential items.

Both HUL and ITC, on Friday said that its operations have been hit owing to the lockdown imposed to contain the spread of Coid-19 and joined its peers like Marico, Nestle, Dabur, Emami and others.

In a regulatory filing with the BSE, HUL said that owing to the 21-day lockdown to stem the proliferation of Coronavirus, operations in many of its manufacturing, distribution centers, warehouses and extended supply chain partner locations have been disrupted.

“We have had to scale down and suspend operations in most of our operating locations,” HUL said.

Sources said in some locations, production of even essential items have been hit partially or wholly.

The same has been the case with Nestle and Marico as well which has either scaled down operations or suspended the same.

While putting a hold on cigarette manufacturing – its largest revenue earner, ITC has decided to keep production lines of essential items like atta, noodles, biscuits, snacks, soaps, sanitisers and other products running although at low capacity with limited workforce.

Apart from the factories manufacturing essential items, ITC has suspended operations at its factories and plant locations across the country.

“We have obtained necessary permissions in some states for manufacturing essential items and for the transportation of essential products from the factories, warehouses as well as for distribution of products to the retail outlets. Truck movement both for inter-state and local movement has been impacted and will take a few days for the entire eco-system and processes to fall in place for movement of essential goods,” an ITC spokesperson said.

Dabur too has suspended operations across its manufacturing units except for essential products like Ayurvedic medicines, Chyawanprash, hand sanitisers, hand wash and other items.

An industry official said that while companies are keen to keep manpower in the factories at the lowest level possible to maintain social distancing, it is faced with shortage of staff in every level of the manufacturing and distribution process.

“More clarity and support from various state governments and local administration is needed to ensure more smoothness in the system. While there is some clarity from some of the local administration and passes are being issued in some areas, it is not happening across the country coherently which is disrupting the supply and distribution chain,” the official said.

Marico has said that its distribution network has been significantly impacted.

Industry officials unanimously said that seamless truck movement both inter-state as well as within states is the major issue companies are faced with on the distribution side and last mile connectivity issues has to be ensured to avoid any scarcity on the retail front.

“While there is some collaboration from some of the local administration including issuing passes for movement of goods and workers, more attention is needed from the authorities,” a second industry official said.

Most of the FMCG firms, including HUL, ITC and others said that it is working with several government authorities to enable continuity of operations at manufacturing and distribution locations.

“We are working with state authorities and local administration to ensure that manufacturing and distribution activities continue uninterrupted with bare minimum people,” an ITC spokesperson said.

Various states in the country are issuing passes for factory workers and others engaged in the distribution network as well as for e-commerce players.

Henkel steps up adhesives biz in India, invests Rs 400 cr in eighth plant

After exiting fast moving consumer goods (FMCG) in India a few years ago, German major Henkel has been quietly ramping up its presence in adhesives, a business that gives it nearly Rs 2,500 crore in revenue. While rival Pidilite is best known for its consumer-centric brands such as Fevikwik and Fevicol, Henkel is strong in the industrial adhesives segment, providing solutions to sectors such as automotive, metals, packaging and aerospace.

On Tuesday, the company launched is eighth plant and first multi-technology unit in India, at an investment of nearly Rs 400 crore. The plant, also Henkel’s largest adhesive manufacturing unit in the country, is located near Pune in Maharashtra.

Besides its manufacturing facilities, Henkel also has an innovation and product development centre and a flexible packaging academy in the country for its adhesives business.

Speaking to Business Standard, Jan-Dirk Auris, member of the management board at Henkel AG, said the plan was to push India up the pecking order of markets in terms of topline from its current tenth position, using acquisitions, joint ventures and alliances as a way forward. The consumer adhesive space, in particular, he said, was an area Henkel was eyeing closely for future growth.

“India is an important emerging market with tremendous growth opportunity for our adhesives business. I will not exclude moving into consumer adhesives in the future, given that we would like to see India get into the top five markets for Henkel globally in the next few years,” he said.

The statement acquires significance since Pidilite has been strengthening its presence in industrial adhesives, tying up with German player Jowat recently. Jowat is counted amongst Henkel’s competitors globally and the collaboration with Pidilite will see its portfolio available in India, Sri Lanka, Bangladesh and Nepal, experts tracking the market said.

Pidilite has also stepped into areas such as floor coatings, wood finishes and specialised water proofing in recent years using acquisitions and JVs as an entry point.

Auris says that the India business of Henkel has been growing at a clip of about 10-11 per cent annually, which it is expected to maintain in the future. The eighth unit will not only cater to the domestic market, he said, but will also take care of needs in neighbouring regions such as the Middle East, Africa and South Asia.

FMCGs scale-up rural distribution networks to combat economic slowdown

FMCG major ITC and Emami are scaling up their reach in rural areas to battle the subdued consumer sentiment hoping it can help push sales. The move is backed by consumer connect initiatives.

In view of the ongoing slowdown, which has impacted demand in rural India, ITC doubled its rural stockist network in the current fiscal year with significant increase in coverage across low population group markets.

“We have actively increased our direct reach in rural areas by adding more than 25 per cent new markets to the existing large serviced base”, an ITC spokesperson told Business Standard.

ITC’s handler base currently stands at 6.2 million outlets and it continues to deploy resources to augment the coverage aggressively. Nearly 80 per cent of new handlers added in the current year come from the rural sector.

Meanwhile, Emami Ltd, which has one of the highest exposures in rural areas among its peers, is banking on its Project Dhanush initiative which it undertook three years back to reach the deepest and remotest of the geographies.

In the last three years, Emami expanded its footprint to more than 20,000 towns with a population of around 3,000 across India. “Van branding and visual merchandising at outlets through point-of-purchase visibility have proved to be an effective consumer influencer fuelling rural channel growth,” Mohan Goenka, director at Emami Limited told this newspaper.

With more than 3,000 distributors and more than 600,000 square feet of trade assets, which incidentally is the largest in-store merchandising in the country, HUL also has prioritised increasing its direct distribution network.

According to the International Journal of Research – Granthaalayah, since its launch in 1997, HUL has appointed 6000 sub-stockists because of which its distribution network directly covered about 50,000 villages and is reaching about 250 million consumers.

This translates into 37 per cent of rural consumers. The rural distributor has a set of stockists attached to it who drives distribution in villages using unconventional transport like tractor, bullock cart and others.

Nearly all of the FMCG companies like Marico, HUL, ITC, and others have been pointing out that the operating environment has been challenging with a drop in consumption, especially in rural areas, severe crunch in market liquidity conditions and disruptions and floods in several parts of the country.

FMCG players are also leveraging e-commerce platforms and using digital technology to drive sales.

Both HUL and ITC are using big data analytics to attract consumers from small towns or rural India by offering suitable products, SKUs and communicating its portfolio. HUL has also come up with an online ordering app for its salespeople as well as opt for customised promotions.

“FMCG brands are leveraging e-commerce platforms to offer their products catering to the growing demand and in 2020 we got orders from big cities as well as smaller cities such as Ajmer, Bharuch, Chittoor, Dharwad among others. We are consistently widening our selection of FMCG daily essentials making them available for customers throughout the country with our growing infrastructure capabilities”, an Amazon spokesperson told this business daily.

According to Nielsen India, FMCG sales via the e-commerce route is expected to grow to $4 billion by 2022.

Pointers –

*ITC’s 80% of new handler base came in from rural

*Emami expanded its footprint to more than 20,000 towns and rural locations

*HUL’s distribution network directly covered about 50,000 villages

*HUL & ITC employing e-commerce platform and digital route in rural areas

*Emami banking on online routes for urban centers only

ITC, Mahindra & Mahindra trade close to their 52-week lows

Shares of FMCG major ITC and automobile company Mahindra & Mahindra (M&M), from the S&P BSE Sensex, were trading close to their respective 52-week lows on the BSE on Tuesday. These stocks were down in the range of 1 per cent to 2 per cent. In comparison, the S&P BSE Sensex was down 0.26 per cent at 40,381 points at 01:05 pm.

Among individual stocks, ITC was down 2 per cent to Rs 237, quoting close to its 52-week low of Rs 234, touched on September 18, 2019. M&M was trading at Rs 509, down 1 per cent, and close to its 52-week low of Rs 503, hit on August 14. The stock has fallen 12 per cent in past month on weaker tractor sales.

In November, M&M’s tractor segment’s volumes declined 19 per cent to 21,032 units, over the same month previous year. Within tractors, domestic volumes declined 19 per cent to 20,414 units, while exports were lower by 22 per cent to 618 units.

However, according to industry players and channel participants, tractor industry fundamentals are improving at the margin. There are expectations of positive growth in Q4 and cyclical bounce back in FY21 (after a year of downcycle) given better reservoir levels & no meaningful regulatory headwind, analysts at JP Morgan said in auto sector update.

With government support on agri and rural sector and a healthy reservoir levels due to the above normal monsoon, we expect a good Rabi output in the coming months, the company's management said on December 1, while announcing November sales data.. "This will generate positive sentiment and drive growth, going forward", it said.

Meanwhile, Allahabad Bank, Gail (India), Reliance Capital, PC Jeweller, Ashoka Buildcon and Indostar Capital were among 11 stocks from the S&P BSE 500 index that hit their respective 52-week lows on the BSE today.

Rural India's e-Governance wing targets FMCG sales of Rs 100 crore

The federal e-Governance initiative for rural India – Common Service Centres (CSCs) – is aiming to achieve fast moving consumer goods (FMCG) sales worth Rs 100 crore in the current 2019-20 fiscal.

This would be a ten-fold growth over the last financial year, when CSCs had logged total sales worth Rs 10 crore.

“Apart from consumer goods, CSC outlets also sell agro products such as fertilisers and seeds in rural areas,” CSC e-Gov Services India CEO, Dinesh Kumar Tyagi, told Business Standard in Lucknow today.

He said apart from offering FMCG and consumer goods, the CSCs were also providing utility services such as payment of electricity bills. “Last month, the centres had collected UP power bills worth Rs 550 crore.”

CSC is a Special Purpose Vehicle (SPV) of the Union Ministry for Electronics & Information Technology under the aegis of the Centre’s Digital India programme. They are modeled as front-end outlets for the delivery of various Government-to-Citizen (G2C) and other Business-to-Citizen (B2C) services.

These are managed and operated by local skilled entrepreneurs known as village level entreprenuers (VLE), which currently number almost 400,000 pan India. It now has presence in almost all the villages and panchayats across the country.

So far, CSC has inked agreements with some leading FMCG companies viz. Patanjali, ITC, HP, Godrej, Samsung, iBall, IFFCO, KRIBHCO, Rita Machines etc. Besides, it has also firmed up alliances with several public and private sector banks to offer a bouquet of financial products in the rural areas.

Meanwhile, public sector HDFC Bank today rolled out its festive season offers, including discounts and easy loan facilities in rural pockets in partnership with CSC, under which consumers can avail of special festive offers available across the spectrum of financial solutions.

HDFC Bank country head (branch banking) Arvind Vohra said the Bank had tied up with over 1,000 retail brands for discounts, cashbacks and extra reward points on both in-store and on-line purchases. Leading retail and consumer brands like Reliance Digital, Samsung, Vijay Sales and Big Basket would offer up to 10% off on various products and services, he informed.

This is the 2nd phase of HDFC Bank’s ‘Festive Treats’ campaign, which was first launched in Mumbai on September 30. However, the rural leg of the campaign was launched in Lucknow this afternoon.

The partnership with CSC has facilitated the reach to most remotest parts of the country with VLEs acting just like Bank branches, HDFC Bank country head (Government and Institutional Business, E-Commerce and Start-ups) Smita Bhagat said.

Apart from VLE network, HDFC Bank’s 5,000+ branches will also be tranformed into financial supermarkets, where customers can walk in and speak to staff on queries and avail of the offers. In addition, customers can avail of offers from digital platforms viz. PayZapp and SmartBuy.

FMCG firms pin hopes on new govt's rural reforms for demand revival

The Narendra Modi government, voted back to power last week, will take oath amid a consumer slowdown in staples and discretionary categories. Billed as the worst in two years, chief executive officers (CEOs) of retail and fast-moving consumer goods companies (FMCG) say that the government will have to hit the ground running if it wishes to contain the damage.

Already, Q4 numbers of most FMCG and retail firms have been weak as they show signs of stress. Rural sales growth, which was ahead of urban sales growth by at least 100 to 200 basis points for most companies over the past few quarters, has now moderated, data by market research agency Nielsen shows.

“Rural incomes have to rise, so that the consumption slowdown in these markets is addressed,” says Kishore Biyani, founder and chief executive officer, Future Group. “A revival package for rural areas will help and with a stable government in power, I think, a lot can happen,” he says.

Suresh Narayanan, chairman and managing director, Nestle India, says, “India has consistently posted stable growth in the past few years with low inflation. However, with inflationary pressures now growing and the forecast of a below-normal monsoon, farm incomes will be affected. Giving an impetus to rural households is the need of the hour.”

Nielsen has already lowered its growth forecast for the 2019 calendar year by 200 basis points for the domestic consumer goods market, saying sentiment remains weak.

The agency also says the categories that have been impacted the most due to the slowdown include food and personal care. While value growth of food and personal care in calendar year 2018 was 15 per cent and 12 per cent, respectively, this is expected to moderate to 13 per cent and 11 per cent each in the current calendar year, it said.

“A stable government is welcome for the nation and economy. We hope in its second term, the government will usher in the next phase of reforms. In sectors that contribute significantly to state GDP (such as beverage alcohol), we look towards the federal government to encourage states to bring about comprehensive regulatory reform,” Anand Kripalu, managing director and chief executive officer, Diageo India, said.

Sunil D’souza, managing director, Whirlpool India, says, “While in the short term we expect to see stronger market sentiment and renewed consumer confidence, in the longer term the continued thrust on reform and growth bodes well for the consumer story in India.”

Chart In its first term, the Modi government had kicked off welfare measures such as the PM-Kisan scheme. It had increased the minimum support price of crops and worked to improve infrastructure, electrification and irrigation in rural areas. While the rural welfare schemes are welcome, some chief executive officers and corporate executives say there is need to monitor their outcomes closely.

Lalit Malik, chief financial officer, Dabur India, says, “The government should ensure that the fiscal incentives reach rural consumers, so that purchasing power improves. The focus should also be on employment creation, which will go a long way in accelerating consumer demand.”

Adi Godrej, chairman, Godrej group, says, “GDP growth is what the government should concentrate its attention on. Because growth will bring jobs, improve incomes and spending power. It will also help address distress, especially in rural areas and bring about some revival in those markets.”

Harsh Mariwala, chairman, Marico, says, “I believe the focus should be on implementing difficult reforms such as land, labour and agricultural reforms. The government did not move strongly in these areas during its first term, priorities will have to change during its second term.”