THE NEW NORMAL
We are in the middle of a complete nationwide
shutdown, now in its 26th day… with around 16 more days to go. Shops,
establishments, companies, etc – all are in minimal or shutdown mode. Economic
Activity is at a complete standstill; but there will be a day when things will
re-start, when life will begin crawling back to normal. With regard to that, a
lot of thoughts, facts and/or factoids are being shared by all. In the same line,
here is my analysis of The Coming Days for us, Indians.
THE BACKDROP
What will happen will essentially
depend on the runup to the event itself, the disease outbreak. If you will recall,
we were going through a rather challenging phase on the economic front as a
nation, with a plethora of problems to deal with. Clearly, they aren’t going
away; this needs to be kept in mind. The going wasn’t great to start with; and on
top of that, we have this outbreak. So, prima facie, things look rather tough –
but there is more to the story. The point here is, while this remains something
to be kept in mind, we have to shift our focus now to other more pressing
issues
WHAT WILL CHANGE?
The long and short of it, in fact –
the gist of the entire article, is that, as on date we do not know. We can only
take a guess; and most – if not all – people opining are guessing. Some may be
guessing basis educated estimates, some basis data – but nearly all are
guessing. The reason is firstly this situation is pretty much unprecedented in
our lifetime at least. We are in new territory here – and for us, it is going
to be a path of discovery. This is what I propose to examine in the balance of
the article – what are the reasons for this statement, that we are in unknown
territory…
ü Principal
Factor: Changes in Demand &
Consumption Patterns
ü Minor
Factors {for consumer segment} :
Ø Changes
in Factors of Production
Ø Changes
in Sentiment
Let me set out my opinion on the
above 3 in summary form; I will not touch the aspects of Monetary, Fiscal
responses, other economic aspects, technical disease aspects etc. The focus of
this article is on just the 3 factors listed above on the consumer segment only,
and in a short precis format.
CHANGES IN DEMAND &
CONSUMPTION
This is a total shutdown; what this
is doing is, it is catalysing a shift in Demand / Consumption patterns in the
Consumer Market. Now these shifts, it might appear, are temporary, and we will
go back to the normal. But will we? This is an assumption – and we have no
previous similar experience to bank on in our living memory that can give us confidence
in such an assumption. This assumption might just be correct – but it might
just as well not be accurate.
In opinion, we can expect an eventual
return to normalcy in some categories; whereas in some others there are certain
to be changes that will stand the test of normalcy. In other words, in those
areas – we can expect a new normal. It is hard to see which as of now, but we
can make a few guesstimates. The Kirana segment, for example; it will not be
lost on any number of consuming households that the local Kirana was a pillar
of support. So one can logically expect a shift in demand to some extent from
SuperMarkets and App-based services like BigBasket.
Not all categories in consumption in
household consumption will change – price sensitive or discounted items will
continue in the old way; but some purchases are nearly certain to shift to the
Kirana. What will be the extent, volume and type of the shift is anyone’s
guess. On the App side, and the Modern Trade side, they may face issues in
giving higher discounts on full restart, as they may prefer to wait &
watch. The reason is that there is a guarantee of a full loaded rush in the
first few days of restart as households restock. Basis that experience and
forward judgements, a call will need to taken by them. This may further catalyse
shifts.
Another example – other household
consumables. People dependent of 20L Water Bottles may want to now install a filter
at home due to interruption of supplies; signalling a cross-category shift. A
third example – consumables not in stock in these 2 months will have been
supplanted by alternatives; for example – biscuits, with a brand not available;
leading to a competitor with stock gaining. A 4th example – changing
culinary habits, with the erratic supplies in the kitchen some new experiments may
find their way into the Kitchens.
These and other examples are a real
threat to the old normal, as this time the interruption is seismic in nature,
extending to weeks, giving time for tastes and choice to develop. And these are
just a few stray examples quoted above; the point is 6-7 weeks is good enough
for new tastes, choices, options to make a home in the consumer’s mind. Or, it
might not; we do not know for sure. Basis consumer behaviour, we can make an educated
guess. Closing this segment with a 5th Example: My milk brand has
interrupted supplies – an alternative gave me service for weeks. I develop a taste
and liking… result: old is minus 1, new is +1. Now extrapolate on an industry wide
scale. There will be change; but will it be statistically significant? We do
not know.
CHANGES IN THE FACTORS
OF PRODUCTION
The factors of production are Land,
Labour, Capital and Entrepreneurship. I would like to draw your attention to
the middle two – Labour , and Capital; although, the startup community might
logically and correctly argue that never before has such a seismic event occurred
– which has unleashed risks, yes – but also opportunities for innovative thinkers
to tap into. That is Entrepreneurship – or a part of it. But my main thrust
here is Labour, and to a much lesser extent, Capital. As promised, no economics
in this article – so we leave capital aside for a later article on the Business
& Industrial Markets.
Now this is, truth be told, a matter
for the industrial markets, and this article is dedicated to the consumer
segment. But it has one significant consumer impact: Migrant Labour has left to
its own homes, meaning we could see impacted factories taking a little time to
get to full capacity. And remember, we can expect a demand rush initially – thus,
orders will increase. Are there enough supply chain inventories to meet initial
demand, and will be the demand be sustainable post the initial rush? There will
also be sector-wise differences; which sectors will be hit harder than others? At
this point, none of these questions is easy to answer.
CHANGES IN SENTIMENT
This point is by no means minor in
its importance; but with reference to this article, it is the hardest to judge.
We can only assume here – no estimates or guesstimates are feasible – this is
not a topic to lend itself to estimation. Coming out of such a long lockdown,
what will the consumer sentiment be towards fast moving consumables and electronic
/ household appliances? Will planned / desired purchases of costly appliances
be postponed, given the EMI resumption that will happen, the job losses, the
uncertainty that will prevail? FMCG goods we have already examined in detail above.
What will be the sentiment towards growth
expectations, professional expectations, etc post the Corona incident? Some
negativity is to be expected; how long will that last – and what stimulus will industry
and Government inject into the market? This remains to be seen. The Stimulus
will clearly be towards Industries, as it should be, with a segment of it for
the economically weaker sections as we have already seen to some extent. How
will it impact consumer demand in the market, and what will be the attendant
time lag for the resultant response to the stimuli? That will be key.
CONCLUSION
Thus, we have examined the consumer
demand scenario in some detail, and looked at two of its offshoots – in summary.
From the above, we can note a plethora of questions that I, the author, do not have
either the data or an idea as to what will or might happen. Will these concerns
highlighted come true - this remains to be seen; it might be that I am wrong on
all of the above! But one thing is sure – questions are there, and we will have
to wait to see the results of the corona incident in the sphere of the nations
economic activity…
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