While many of us had huge plans for the year 2020, the year apparently had a different plan for us. This realization comes as we face the Covid-19 pandemic and are under lockdown. The biggest loss is coming in the form of human loss and fear of many more succumbing to it. Next to this is the economic loss which has already started unfolding itself and is going to be affecting us more in the times to come.
Economic experts are constantly deliberating to understand the magnitude of impact Covid-19 will cause to different sectors of our economy. Retailer supply chain happens to be one of the most crucial ones to be impacted by the pandemic and the on-going lockdown.
As per KPMG’s latest report, the market size of retail and consumer industry is US$ 950 billion (2018-2019). However, as we hit the coronavirus pandemic and the lockdown, the economic activity has come to a standstill and is expected to affect investment, consumption and external trade – the three important contributors to GDP.
Some impact of lockdown has already been seen on the retailer supply chain. This includes:
– Supply of Raw Materials and Price Difference: Since everyone has been asked to stay inside under the lockdown, this has severely impacted the supply of raw materials. Movement of raw materials, if not essential, has been put on hold. This has been acting as a huge challenge for the raw material supplies and logistics department of many suppliers. As we apply the rule of economics here, lesser supply and unaffected demand will lead to a surge in prices.
– Shutdown of Production: As we go beyond the category of non-essentials, the demand has gone down severely for the certain category of good and the production for the same has also come to a halt. It is not anticipated to be picked up anytime sooner. According to the industry experts, non-essential food retailers are likely to witness 80-100 percent cutdown in sales because of the lockdown. To make the situation worse, the retailers of essential items too will face losses since they are not permitted to push off the non-essential items, which has higher margins for many of the stores.
– Stifled Cash Inflow: The number of retailers in the Indian retail industry is over 15 million. The retailers are under severe pressure as close to 85 percent of the retail costs are fixed costs with no fixed income. Owing to the lockdown, the cash inflow for the retailers has come to a pause even though the fixed costs remain as it is. The situation we are grappled with at this moment, the cash rotation is going to further slow down in the coming months except for the retailers only with supplying essentials.
– Labour Shortage: As per government’s order, laborers are also stuck in the lockdown. Apprehensive of the situation, a huge chunk of migrant labor is moving back to their native lands causing huge shortage of manpower for various industries. There is no denying about the importance of labor in the retail and supply chain segment. The shortage of labor has created a havoc for the retail sector. This havoc is not only concerned with the goods’ production but also with the delivery of the produced and raw materials. While some are expecting layoffs at retail and supply chains because of piling losses, some are anticipating losses because of labor shortage.
– Hit to Import Cycle: Even after the lockdown is lifted, Indian traders are not likely to have ample in their bucket sell as lockdown has hit the retailers’ import cycle very hard. India imports finished goods from China, US and Europe which have gone under unknown delayed period. The lockdown has also impacted the imports of raw materials from outside the country which will further affect the dependent industries.
– Fall in Discretionary Spending: Economic experts are of the opinion that a steep fall is expected in the discretionary spending of people. This means an expected decline in the footfall and net sales of the stores, even when they reopen. This may not include all the retail stores but most which fall outside the contours of essentials.
Lockdown – Boon or Bane for the Food Industry?
Similar to two sides of a coin, the lockdown is proving to have two sides. While many are losing jobs and many retail stores have reached the verge of shutting down, the lockdown is probably proving to be boon for the food retailers. Grocery as well as medical stores have seen a sharp rise in demand. This also has a dual impact.
Since the major population is operating out of home, this has led to an increase in at-home consumption and decline in the delivery of cooked food from outside. This is partially because of less faith on where the food is coming from and its hygiene level, and partially because the government has not permitted restaurant deliveries in most of the cities.
Further to the initiatives of Swiggy and other online platforms to deliver grocery, grocery sales of retail stores has spiked to a new higher level. However, a spike in prices has also been seen. The retailers are selling the grocery for prices higher than normal. This could also be because of the exceeding demand vis-à-vis the available supply.
The sales of retail stores have spiked and all in all, it could be concluded that food industry is one of the rare industries which has emerged somewhat unscathed from the current situation of lockdown.