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FMCG and Covid-19: Sector set for considerable change

It’s clear that the coronavirus has changed the landscape for FMCG – in some ways permanently. However, the impact has not been the same across its subsectors and through the supply chain.


“The lockdown has hit the economy hard and despite efforts by the government and Reserve Bank to mitigate the effects, ultimately only a medical solution is likely to provide lasting relief to consumers and businesses servicing those consumers,” says Itumeleng Merafe, head of interest rate structuring, Investec Corporate & Institutional Banking.

The market for FMCG faces considerable changes – impacted by demand for consumer-packaged goods, changes in household spending, increase in e-commerce and frequency of shop visits. And while there can be no doubt that consumer staples have been affected, the picture has not been uniform across the FMCG universe.

Not all made equal

Anthony Geard, food and beverage analyst at Investec points out that not all companies have been equally exposed to Covid-19 risks. In fact, some consumer staples businesses around the world have done relatively well. 

“Some consumer goods are considered necessity products and thus do not react to slowdowns as much as products in other sectors. However, some companies are proving to be bulletproof. Companies like P&G, Kimberley Clark and Mondelez have done particularly well. However, it has not been the same for others in the sector where beverage and brewing companies, for example, have held up less well.” 

Companies in the tourism, leisure and car rental industries, as well as sectors previously considered resilient, such as food services, have been hard hit by the lockdowns across countries.

“The rand certainly has had its role to play here,” says Geard. “Every consumer good in South Africa is either imported or is impacted by import prices in some way. For example, items such as tea or wheat were either imported or the local prices were set upfront according to the imported price.

“The much weaker rand, therefore, means higher input costs for many in the sector – costs that they have been unable to recoup. Therefore, we are likely to see some form of food inflation down the line.” 

In terms of identifying winners and losers, Geard notes that businesses with a strong export component to their earnings, would likely benefit from the weaker rand going forward. But it’s all about timing…..

BizCommunity: For the full story read more HERE

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