Unlike the last 10 years, the Indian economy is starting the new financial year with an unprecedented impact on its supply, demand and liquidity.
While the economy was already walking on precarious ground, Covid-19 has made things worse.
Its impact, that started out as a manufacturing-oriented misadventure, has rapidly metamorphosed into a worldwide jolt to social behaviour, travel habits, consumer spending and lifestyles, hurting individuals, small businesses, developing and developed nations, all alike.
In the midst of this massacre lies the fragile Indian retail industry which was already struggling to survive India’s rapid and headlong dive into e-commerce.
In this article, we at PwC have attempted to evaluate the potential impact on and opportunities for Indian retailers in three key segments: Grocery, restaurants and fashion:
Grocery: Kirana is King
Up until two years ago, the clamour of India’s mom-n-pop stores against the advent of global multi-brand retailers and popular e-commerce marketplaces could be heard all over the world.
Intimidated by the deep pockets of such multi-national players, the kirana stores battled hard to prevent their entry into the Indian market.
The opening up of the Indian markets, the larger e-commerce revolution and now the infamous Covid-19, have triggered a rapid overhaul of the unorganised Indian grocery retailers which constitute more than 80% of the overall market.
Specialist hyperlocal delivery startups, generalist e-commerce marketplaces, supermarket retail chains and even the likes of social messaging apps like WhatsApp today are waging wars to tie up with paan shops and digitise their supply chains in order to leverage their loyal customer patronage and proximity to local shoppers.
What remains to be seen is how relevant the Indian grocery retail chains will continue to be in the light of rising consumer concerns over social gathering at such stores and their newfound affinity for home delivery.
A possible consequence of these challenges could be a heightened consolidation among large players in the segment or bailouts from global private equity/retail companies.
However, one thing that can be said for sure is that e-commerce will get a significant push from this pandemic and businesses will invest in both: Becoming more agile and building resilient supply chains.
Restaurants: When the customer is confined
The period of 2019 was a blockbuster year for the budding Indian food services market when consumers ate restaurant-cooked food more than ever before (national average of 6.6 times/month), spoilt for choice by the ever-increasing list of new restaurants, cafés, bars, pubs and cloud kitchens.
Covid-19, however, has dealt a serious blow to the industry.
Due to its inherent business model, the segment has a higher proportion of fixed operating costs such as rentals and manpower expenses, and with next to zero revenues for the foreseeable future, the industry is fighting hard to hold ground and make it through the outbreak.
What’s worse is the direct correlation between cities with the highest dining-out frequencies and Covid-19 cases.
Delhi, Mumbai and Bengaluru are among the districts worst-hit by the outbreak and therefore may witness a prolonged enforcement of lockdowns and social distancing norms.
Even after the lockdown is relaxed, increase in input costs, muted consumer footfall and heightened maintenance costs due to supply chain bottlenecks, consumer apprehension about social gatherings and demand for stricter hygiene and safety standards are expected to drain the coffers of restaurant owners.
In this struggle for survival, while food-delivery platforms offer some solace to restaurants, the hasty influx of food joints enlisting on such portals fighting for a limited share of a distressed consumer wallet is likely to intensify competition in an already competitive market and further erode margins.
Apparel: Dressing to impress will remain repressed
If there is one segment that is most severely impacted from Covid-19 in retail, then that is fashion.
Not only are these retailers probably the last in the government’s list for relaxing lockdown norms but purchases of apparel, footwear and accessories due to their predominantly discretionary nature are unlikely to be too high up on the consumer’s list for their future purchase plans either.
Compounding this further is the dependence of fashion on forecasting trends and patterns in consumer behaviour to predict demand which may become a daunting task due to the volatility in the current situation.
Consequently, many retailers plan to roll out existing unsold inventories to the incoming season and resort to steep discounts to sell outdated stocks.
A conspicuous trend would be a fast-tracked shift to e-retail channels.
Brands across sub-segments are likely to invest in building their own direct-to-consumer websites and collaborate with fashion-oriented marketplaces to reach their restricted customers.
Escalation in mergers and acquisitions (M&As), consolidation among key players and increased investments from companies like Amazon and Myntra into such businesses is likely to follow suit.
Sanjeev Krishan is partner and leader, deals; and Vineet Satija, director-deals, PwC India. Mitul Goyal, senior analyst, deals, also contributed to this article. Views expressed are personal.
