Impact of Covid-19 on Consumer Goods industry
In December 2015, McKinsey came out with a report on the future of the Consumer Packaged Goods (CPG) sector in 2030 titled, ‘The consumer sector in 2030: Trends and questions to consider’. With the ongoing Covid-19 pandemic and associated uncertainty in the global economic environment, several of the dominant forces and the underlying trends identified in the report (see attached image) are going to be impacted. Organizations will have to rethink their strategies as some of the trends in consumer behaviour and market conditions have gotten disrupted.
Dominant Force 1: Changing face of the consumer
While the personas of consumers keeps changing over time for all products, some of the underlying trends observed in the report will continue to be present in post-Covid era. What will change though is that for the near term and particularly in developing economies like India, the urbanization trend may get impacted with large chunks of workforce having moved back to their native places in the hinterland. With the industrial sector having been impacted adversely and in some cases irreparably, the workforce may choose to stay back in the primary sectors like agriculture. The middle class spending figures may see a severe negative trend from the earlier predictions as people will prefer saving for the proverbial rainy day.
Dominant Force 2: Evolving Geopolitical Dynamics
Commodity costs may buck the trend from the earlier predictions as the currently unutilized resources due to lockdown in most geographies will create a supply glut in the near term. Case in point, crude oil and associated derivatives will take quite some time to recover from the dual impact of Covid-19 and the ongoing Saudi-Russia supply war.
Economic power in the interconnected world of today keeps shifting always though the directions of the shift are expected to get impacted in the post-Covid era. In recent past, globalization was a major trend to factor into business strategy. But with rising unemployment rates, countries and governments may rethink their policies on immigration and migrant labour force.
Supply chains have been severely disrupted globally and locally for most economies due to the enforced lockdowns. If the lockdown situation stretches for long, the previous economic benefits of utilizing the most efficient factors of production from across the globe to produce at scale will no longer be feasible. Even on the retail side, mom-and-pop stores may see a resurgence compared to large format supermarkets.
Dominant Force 3: New Patterns of Personal Consumption
Among the 5 Forces mentioned, this is the one that is going to be affected the most by the ongoing pandemic and consequently also going to be a force that will have a bearing and impact on all other forces. Focus on health and wellness is an obvious trend in situations like the current one. Discretionary spending though is one trend that will see a big negative impact. The economic impact of the pandemic is already causing unemployment to shoot up, and this trend is expected to continue. Consequently, people will curtail their discretionary spending and focus more on savings. Deal seeking behaviour is likely to increase with customization and personalization taking a back seat in favour of cheaper products. The enforced lockdown is likely to promote the behaviour of buying local products even more.
Dominant Force 4: Technological Advancements
This is a factor that will actually continue to be promising and may even pick up pace as the consumers become savvy in working from home during the enforced lockdowns. Staying connected digitally during this period of social distancing is actually setting the foundations for an opportunity for CPG companies to leverage new technologies like AR/VR, IoT, AI, etc. to create never before experiences without the need for setting up costly physical infrastructure for consumer experience. These technological advances being geographically agnostic can be leveraged to provide best-in-class experience anytime, anywhere. Additionally, as more and more consumers embrace these technologies, the organizations will be able to create unique, personalized and customized experience at a fraction of a cost compared to the current.
Dominant Force 5: Structural Industry Shifts
Like ‘changing face of consumers’, structural industry shifts are as constant as change itself though the underlying trends keep varying from situation to situation. As the Covid-19 situation continues to evolve, it will throw up new challenges for the industry which will need to be addressed. It is too early to assess the various structural changes in the industry that will result from the pandemic. Most organizations will need to keep their drawing boards handy and be prepared to start from first principles as the unprecedented situation and the consequent unprecedented measures from governments across the globe will continue to keep the situation as an evolving one in the near term. It will be in the best interest of organizations to strategize only for the near term (immediate) and medium term (1–2 years) for now and start thinking about the long term once situation begins to stabilize globally.
Most of the trends and planned strategies will be rendered obsolete across sectors as organizations strive for survival in the near-term. Technological advances and new business models are likely to be the magic that will help phoenixes rise out once the ashes of the current pandemic settle!!!
