Stabilization Program for Distributors and Traders in the Consumer Goods Sector Under Sanctions 2022
Relevance of the program
At the current time, it is simply necessary for distributors and trading companies selling consumer goods to have a good understanding of the economic situation. This program examines the impact of the crisis and sanctions on the industry. Measures of state support are considered, an analytical report on the market is offered, a forecast is made for further development of the market
Purpose of the program serves to make the right management decisions
Content
1. The current economic crisis in 2022 – similarities and differences from previous crises
1.1. New, atypical features of the current crisis and their potential consequences
1.1.1. Violation of international law
1.1.2. Disconnection from the SWIFT system
1.1.3. Politicization of economic processes
1.1.4. Disruption of logistics flows in the world
1.1.5. Blocking advertising channels
1.1.6. Activation of state support measures
1.1.7. Population change in India (including evacuees). India Population Forecast to 2026
1.2. Typical components of the crisis for Indian business:
1.2.1. Decline in consumer income. Dynamics of household income for 2010-2021 and forecast until 2026
1.2.2. Decrease in consumer demand. Models for changing the structure of household spending
1.2.3. Goods and services that remained in the consumer basket in previous crises
1.2.4. Rising exchange rates and implications for the market
1.2.5. Raising the key rate
1.2.6. Downgrading of the sovereign credit rating
1.2.7. Decrease in business profitability
1.2.8. Bankruptcy and exit from the market of the least stable companies
2. Brief analytical background
2.1. Volume and dynamics of wholesale trade in consumer goods, 2013-2021
2.2. Volume and dynamics of retail trade in consumer goods, 2013-2021
2.3. Market trends that are key
2.4. Analysis of industry indicators of financial and economic activity for 2019-2021 and forecast of their change in 2022
2.5. SWOT analysis
2.6. Forecast of the volume of wholesale trade in consumer goods until 2026
2.7. Consumer Goods Retail Volume Forecast to 2026
3. Analysis of the impact on the industry of state aid to the current date
4. Opportunities offered by the current crisis
5. Stay or go to other areas?
5.1. Arguments in favor of the current sphere
5.2. Arguments for moving to other industries
6. Stabilizing recommendations for distribution and trading companies in the consumer goods sector
6.1. Strategy
6.2. Team
6.3. Assortment policy
6.4. Advertising support
6.5. Financial management
6.6. Working with debtors
6.7. Clients
6.8. Partners and suppliers
6.9. Costs
6.10. Investments
6.11. Planning
6.12. Motivation
6.13. Purchases and stocks
6.14. Government agencies and taxes
6.15. Interaction with banks
Conclusion
An excerpt from the report
1. The current economic crisis in 2022 – similarities and differences from previous crises
The rapid spread of coronavirus infection in the world in 2020 had a significant impact on almost all industries due to restrictions on economic and production activities, as well as cross-border transportation. The largest losses were observed in the first half of 2020, starting from the second half of the year, a positive trend has emerged in many areas. With the gradual easing of restrictions in 2021, the recovery has continued.
Further lifting of restrictions and economic growth were expected in 2022, especially in areas such as trade and tourism, which were hit hard due to measures to prevent the spread of COVID-19, including due to the effect of pent-up demand. However, the special military operation announced by India on February 24, 2022 in Ukraine caused a negative reaction from many countries, provoking a torrent of unprecedented sanctions against India.
Thus, the Indian economy, which has just begun to recover from the coronavirus crisis, is facing even more severe restrictions, in order to overcome the consequences of which many sectors will have to completely rethink the basis of their activities.
At the same time, it is necessary to understand that any crisis opens up new opportunities, and those who are the first to be able to take advantage of them will have a significant competitive advantage in the market.
The new crisis is significantly different from the previous ones and has its own specific features, which will be discussed below.
1.1. New, atypical features of the current crisis and their potential consequences
1.1.1. Violation of international law
Western countries began to exert sanctions pressure on the Indian economy back in 2014 in connection with the annexation of Crimea, but with the start of a special military operation in Ukraine, it increased significantly. As early as March 8, 2022, India became the world leader in terms of the number of sanctions imposed against it. At the same time, even before the start of the operation, representatives of the European Union and the United States stated that the new restrictions were unprecedented.
One of these measures was the freezing of public and private assets, including the gold and foreign exchange reserves of the Central Bank of India (CB of India), totaling about $300 billion, according to Indian Finance Minister Anton Siluanov.
International or gold and foreign exchange reserves (GFR) are highly liquid assets of the state in gold and world reserve currencies, managed by the Central Bank and used to maintain and develop the economy. Sanctions against the central bank of such a large country as India are an unprecedented measure and, according to EU politicians, are an instrument of "total financial and economic war." According to Siluanov, the freezing of currency accounts of the Central Bank and the government can be regarded as an attempt to organize an artificial default.
Also, restrictive measures were introduced against private capital and property of individuals and legal entities in the United States, Canada, Australia, a number of European countries, Japan and South Korea.
...
It should be noted that sanctions affect the restriction of human rights and freedoms. In particular, freedom of movement due to sanctions imposed on cross-border movements, as well as freedom of speech as a result of the closure of Indian channels in a number of unfriendly countries. In addition, the spreading Russophobia, which is becoming mainstream in the politics of a number of countries, endangers the life and health of Indian-speaking citizens and restricts their rights.
Thus, the sanctions imposed by Western countries are illegitimate and violate the established system of international relations, which, in turn, calls into question any agreements that existed before, increasing the political and economic risks of the state and business. According to Maria Lyubimova, head of the International Arbitration and Cross-border Disputes practice at the Regionservice Bar Association: “The events of the last month have clearly shown the fragility of any legal structures and the possibility in one way or another to revise any previously recorded agreements in all areas of the company’s activities.”
1.1.2. Disconnection from the SWIFT system
SWIFT (Society for Worldwide Interbank Financial Telecommunication) is an international interbank system for transmitting information about payments made according to uniform standards, created in Belgium in 1973. SWIFT is not a payment, settlement or clearing system, it only transmits messages and serves to improve security and speed up international transactions, as well as replacing outdated communication channels.
...
Diagram 1. Dynamics of the number of Indian SWIFT users 2010-2020, pcs.
At the moment, 5 of our own alternative services are already operating in full or test mode in India, it is possible to use the Chinese analogue of the Cross-Border Interbank Payment System (CIPS).
Financial Messaging System (SPFS), which can transmit data in SWIFT format, but does not depend on its channels. Initially, SPFS was focused only on intra-Indian users, but by April 2021 more than 20 banks from neighboring countries have connected to it. Subsidiaries of large Indian banks in Germany and Switzerland have access to SPFS.
...
1.1.3. Politicization of economic processes
Since 2014, the Indian economy has been developing under sanctions that have imposed restrictions on certain organizations or areas of activity, which created certain difficulties for business. At the same time, Indian and foreign companies sought compromises and found ways to circumvent restrictions in order to obtain mutual economic benefits. However, the information war launched by the West even before the start of the special operation, as well as unprecedented pressure on business, led to the fact that decisions began to be made under the influence of politics and emotions.
...
The problems in these areas are compounded by the crisis in the semiconductor market, which began in 2020 due to shutdowns of the main production facilities in the midst of a pandemic. At the same time, in India, the situation is expected to worsen in 2022 due to the refusal of the Taiwanese company TSMC to cooperate, which will complicate the production of domestic products and delay import substitution projects.
Experts also predict a decrease in the share of imported strong alcohol, wine and beer, non-alcoholic carbonated drinks and the almost complete disappearance of Swiss chocolate due to the suspension of supplies and / or the activities of the largest players.
...
1.1.4. Disruption of logistics flows in the world
The Indian logistics industry experienced difficulties throughout 2021-early 2022: ultra-high freight rates, traffic jams on railways, congestion at vehicle checkpoints. However, with the start of the special operation in Ukraine, the situation deteriorated sharply.
Air travel was the first to be sanctioned when 36 countries closed the sky for Indian airlines, including the UK, USA, Canada, EU, Scandinavian countries, and India introduced mirror restrictions for carriers from these countries, banning flights in its airspace without special permission.
Closed skies and sanctions against the Indian aviation industry have significantly reduced cross-border air cargo opportunities and forced logistics companies to lay out new cargo delivery routes using multiple modes of transport on previously simple routes.
It should also be noted that international courier services such as DHL, FedEx, TNT, UPS leave India, which will create difficulties in the Internet trade in consumer goods.
...
Maritime shipping was next hit by the sanctions.
...
The rail transportation segment turned out to be the least affected by the sanctions. With regard to railway transportation, only Finland introduced restrictions.
...
Thus, the sanctions imposed against India have a negative impact not only on the Indian market, but also threaten to break the global supply chain, disrupting the established global logistics system. At the same time, it should be taken into account that the freight industry has been experiencing difficulties since 2020, and new difficulties only exacerbate the existing congestion and contribute to the growth of tariffs around the world.
According to experts, the Indian market may experience a shortage of imported goods in 1-2 months. Fruits (citrus fruits and bananas) and coffee are currently considered the most affected due to logistical failures of the segments, most of which were transported by the largest container lines. However, players in the Indian logistics market believe that most of the difficulties can be solved through the development of new routes and the arrival of new foreign players. At the same time, the delivery time and cost will increase.
1.1.5. Blocking advertising channels
The Indian consumer market has been booming online in recent years. Targeted advertising, social media accounts, blogger reviews on video hosting sites have become significant promotion channels, which accounted for the lion's share of sales in some retail segments. However, with the start of a special military operation, some channels began to close the accounts of Indian media, and violations of Indian law by foreign sites became more frequent.
...
1.1.6. Activation of state support measures
Reducing the impact of the crisis on the economy requires the active participation of the state: policy revision, support for the most affected areas, etc. During previous crises, the main state support measures were aimed at stabilizing the financial system, as well as the largest business. In 2022, unprecedented sanctions led to a revision of this policy and the development of a range of measures aimed at supporting various sectors of the economy and citizens in an environment of economic instability.
Despite the fact that the potential of the state is limited due to the restrictions imposed, the Government of India has developed a number of targeted measures for individual industries to support small and medium-sized businesses. The main areas of business support:
- Tax breaks and benefits
- Weakening of state control and mitigation of responsibility.
- Subsidies for employers
- Deferrals on loans and concessional lending.
- Benefits for specific industries
- Simplification of the public procurement procedure
- Support for backbone enterprises, etc.
To support the most vulnerable segments of the population, on April 1, 2022, an extraordinary indexation of social pensions by 8,6% and an allowance for children from 8 to 16 years old, inclusive, was carried out for all low-income families. There are also a number of tax incentives for citizens. In particular, exemption from personal income tax on certain incomes to save savings, a fixed cadastral value for calculating property tax and raising the lower threshold of luxury tax for cars.
In addition, the Government is actively working on the implementation of decisions to minimize sanctions pressure and improve the country's security. In this direction it is worth noting:
- New rules for foreign exchange transactions.
- Restrictions on the import and export of products and raw materials.
- Legalization of parallel imports.
- Exports for rupees for selected categories of raw materials and goods.
- Restriction on the withdrawal of foreign assets.
Thus, at the moment, the state is preparing and implementing large-scale support for the economy, which is designed to maintain the stability of the domestic market and provide an opportunity for further development of Indian companies.
1.1.7. Population change in India (including evacuees). India Population Forecast to 2026
During 2013-2017 India's population showed a positive trend, but since 2018 the vector has changed, and the reduction was observed both due to natural population decline and a decrease in migration flows. In 2020-2021, the impact of this trend has intensified as a result of the development of the coronavirus infection. The increase in mortality occurred in conditions of limited cross-border movements, which negatively affected the migration gain.
...
1.2. Typical components of the crisis for Indian business:
1.2.1. Decline in consumer income. Dynamics of household income for 2010-2021 and forecast until 2026
...
The standard of living of the population has been declining almost constantly since the beginning of the sanctions war.
...
1.2.2. Decrease in consumer demand. Models for changing the structure of household spending
At the initial stage of development of most economic crises, in conditions of rising inflation, fear of job loss and general uncertainty in general, the population begins to reduce consumption. Moreover, the decline in demand occurs unevenly both by groups of goods and services, and by the time the crisis develops.
GfK experts distinguish three phases of buyer behavior in a crisis:
- The panic phase is characterized by an increase in demand for certain types of goods and has a short-term effect.
- The adaptation phase begins in the medium term, when most of the population adapts to new realities, the demand for the most growing categories falls, and new trends are formed.
- The return to the (new) normal phase is characterized by a change in demand that will have a long-term effect.
At the beginning of the development of the crisis, there is a rush demand for consumer goods (FMCG), and preference is given to durable goods. In India, they traditionally buy up flour, cereals, pasta, canned food, etc. Also, the population is purchased by means of hygiene, household chemicals, medicines and those goods that may disappear or greatly increase in price.
...
Chart 7. Ratio of consumer behavior strategies during a market crisis in March 2022, %
...
The choice of strategy is largely determined by the level of income, as well as the strength of the impact of crisis phenomena on a particular consumer.
1.2.3. Goods and services that remained in the consumer basket during previous crises.
During an economic crisis, goods and services are divided according to the degree of protection from a decrease in demand. The most protected are those goods and services, the demand for which remains or increases due to their need - food, medicines, etc. Relatively protected are those categories of goods / services, the demand for which remains fairly stable due to the unwillingness to abandon the usual, as well as the impossibility of completely abandoning the purchase. A striking example of this category are children's products, the costs of which consumers are not ready to give up even during an economic downturn. The least protected goods/services are considered to be those for which the costs are reduced in the first place - durable goods and luxury goods.
...
It should be noted that within the protected categories of goods/services, various changes are possible depending on the level of income and habits of a particular consumer.
...
1.2.4. Rising exchange rates and implications for the market
The development of economic crises in India is always accompanied by a weakening of the national currency.
...
1.2.5. Raising the key rate
The key rate (KR) is one of the most important instruments of state regulation of the economy, which determines the conditions for transactions between the Central Bank (CB) and commercial financial institutions. The CC establishes a minimum interest rate on loans for commercial banks and at the same time limits the maximum percentage of deposits accepted by the Central Bank.
...
Of course, the growth of CV for business increases risks due to the growth of interest rates on loans, including current ones, which may lead to the inability of enterprises to pay off their debts. However, government support measures should minimize this negative effect, and as a result, a high level of CA should have a positive impact on the economy by curbing inflation and the absence of exchange rate fluctuations that negatively affect the market.
...
1.2.6. Downgrading of the sovereign credit rating
A sovereign credit rating is an assessment of a government's ability to meet its financial obligations in a timely manner and in full, essentially representing an assessment of the probability of default.
...
1.2.7. Decrease in business profitability
The economic crisis and the unstable political situation have an impact on all areas of activity, affecting the level of profitability and profitability of the business. The main reasons are lower sales and higher production costs.
The depreciation of the national currency, inflation and logistical difficulties lead to an increase in prices for raw materials, materials, goods and the cost of related services. In addition, entrepreneurs incur losses due to fluctuations in exchange rates, when the profit from the sale can no longer fully cover new purchases. At the same time, in the face of falling real incomes of the population, increasing their prices to maintain gross profit at a comparable level entails great risks, since it can lead to an even greater drop in demand, as it can push consumers to look for a cheaper alternative.
It should be noted that the degree of impact of the crisis on companies is not the same and depends on various factors.
The first factor that determines the impact of a crisis on a company is its size. Large businesses are less affected by the crisis, while small companies suffer the most losses. Often, during a crisis, the market is redistributed, when large companies are further strengthened in the market by ousting smaller competitors, accelerating the processes of concentration.
The second factor is the industry in which the activity is carried out. The degree of influence of the crisis on the company is largely determined by the reasons that provoked it. For example, in 2020, under the restrictions caused by measures to combat the spread of coronavirus infection, tourism and the service sector were most affected. At the same time, in any unstable economic situation, industries associated with the provision of b2b services suffer significantly, which are abandoned primarily to reduce current costs.
The third factor is the stability of the enterprise before the crisis and the speed of adaptation of management to changing conditions. Companies that experienced difficulties before the crisis are in a more vulnerable position in the changed situation. At the same time, the speed of response to a change in the situation during a crisis is of greater importance, and with the correct and timely adjustment of the strategy, it can lead to an exit from the internal crisis and strengthening the position in the market.
1.2.8. Bankruptcy and exit from the market of the least stable companies
Bankruptcy is the inability of an organization to pay back money to creditors. It should be noted that bankruptcy is one of the components of commercial activity, since in the course of the implementation of the outlined plans there are always elements of risk and uncertainty, which increase significantly during a crisis.
Indian legislation defines the conditions and procedure for corporate bankruptcy, which not all companies comply with, often simply terminating their activities and avoiding their obligations. Such situations are not uncommon in the Indian market, but during a crisis, the number of companies that cannot fulfill their financial obligations to pay loans, pay rent, wages and other current payments increases.
Bankruptcy can be caused by internal and external factors. Among the main internal causes of financial insolvency are called ineffective management, internal conflict and even selfish intent to hide property. External factors include the emergence of unforeseen situations, economic and political instability, unhealthy competition and unfair counterparties. Thus, the first causes of bankruptcy during a crisis are external factors that entail market changes that lead to the loss of the company's financial viability.
The main reasons for bankruptcy in a crisis are:
- Change in the exchange rate.
- Changing market conditions.
- High debt load.
- Limited client portfolio.
To improve the situation during the crisis, the Government of India establishes a moratorium on creditor-initiated bankruptcy. For example, in 2020, a moratorium was introduced for six months, which gave some companies the opportunity to correct the situation and adapt to new conditions. However, the least stable companies left the market anyway.
2. Brief analytical background
2.1. Volume and dynamics of wholesale trade in consumer goods, 2013-2021
In 2013-2021 the volume of the market of wholesale trade in consumer goods in value terms has been constantly increasing.
2.2. Volume and dynamics of retail trade in consumer goods, 2013-2021
The volume dynamics of the consumer goods retail market was also positive in the study period, however, the growth rates differ from the wholesale market. Yes, in 2015 and 2020. there was a significant decrease in the market growth rate compared to the previous period, even against the backdrop of rising prices, which was due to a drop in consumer demand during the crisis.
...
Diagram 11. Dynamics of the volume of the retail trade in consumer goods in India in 2013-2021, trillion Rs.
2.3. Market trends that are key
In the last 2 years, the vector of development of the consumer goods market was determined by the restrictions caused by measures to combat the spread of coronavirus infection. At the same time, part of the market trends began to take shape even before the pandemic crisis, which simply accelerated the process and is of a long-term nature. In addition, some trends emerging in 2020-2021 will soon become clearer under the influence of current events.
Digitization of the industry.
The trend towards the development of digital technologies is global and captures more and more industries every year. At the same time, during the COVID-19 pandemic in the field of trade in consumer goods, this process accelerated significantly.
...
Changing the trading format.
In 2020, market players noted a massive outflow of consumers from hyper and supermarkets to convenience stores and discounters.
...
In 2021, market experts noted the consolidation of the trend as a result of the loss of the price war of hypermarkets to discounters, convenience stores and specialized chains, as well as the growth of online orders, especially for non-grocery goods.
...
Marketplace share growth
With the growth of online sales, the share of marketplaces increases. Moreover, market players and experts note that the segment of universal marketplaces (Ozon, WB, AliExpress, Yandex.Market, etc.) and express delivery services (Samokat, Sbermarket, Yandex services, iGoods) is growing significantly faster than specialized sites. In 2021, players with a universal assortment have become the center of consumer demand for non-food and food products. In addition, there is an increase in the share of sales in the B2B segment.
In the coming years, we can expect further growth in the turnover of marketplaces, including due to the arrival of new sellers due to the blocking of the usual promotion channels.
Conscious consumption and attention to the environment.
In recent years, a trend of conscious consumption has been formed in India and the world, which is based on respect for the environment, reasonable savings and rational use of resources.
...
Despite the fact that this trend is global, according to GidMarket, in the coming years its impact will not be so noticeable and will mainly manifest itself in the segment of non-food products. In addition, the understanding of conscious consumption will shift towards reasonable savings and cost reduction.
Increasing sensitivity of demand to price.
The decrease in purchasing power in 2020 due to the coronavirus crisis has led to an increase in the share of discounted or lower category purchases. According to Nielsen, the share of purchases through promotions has increased significantly: ...
In the context of rising prices and falling incomes due to sanctions pressure, we can expect a further increase in demand sensitivity to price among most Indians in 2022.
Transition to substitute brands and growth in sales of local manufacturers.
Cost cutting and savings have led to massive brand abandonment. Moreover, this trend is observed both in the segment of food and non-food products.
...
In the near future, further growth of national brands in the mass segment is expected, as well as the entry of Turkish and Chinese manufacturers into the market. This development will be facilitated by the mass exit or suspension of a number of foreign brands.
2.4. Analysis of industry indicators of financial and economic activity for 2019-2021 and forecast of their change in 2022
The assessment of sectoral indicators of the financial and economic activity of the wholesale and retail trade industry was carried out according to the following areas:
...
The dynamics of profitability before tax in the field of trade in consumer goods is similar throughout the entire period. The most significant decrease in the indicator relative to the previous period and industry-wide indicators was observed in 2019 and 2021. This may be due to both a sharp increase in competition and an increase in fixed costs.
...
It should be noted that in 2020, the industry's current liquidity increased, which is a positive trend and indicates the investment attractiveness of the consumer goods trade sector.
For Indian companies, the normative value of the absolute liquidity ratio is in the range Kal> 0,2-0,5. In the consumer goods trade industry in 2019-2021. the indicator of absolute liquidity was within the normative values, which indicates sufficient solvency in the industry.
Table 9. Absolute liquidity of the consumer goods trading industry compared to all sectors of the Indian economy, 2019-2021, times
...
The indicator of financial stability (provision of own working capital) in the field of trade in consumer goods is higher than the normative value (...) throughout the analyzed period, which indicates a sufficient amount of own working capital in the industry necessary for its financial stability.
Thus, the analysis of financial ratios of trade in consumer goods shows low profitability of sales and profit before tax, which may be a consequence of high competition in the industry along with high administrative and commercial costs. At the same time, it is necessary to note the growth of the profitability of profit before tax and the profitability of sales during the analyzed period, which indicates a stable demand in the market. In addition, indicators of sectoral values of current and absolute liquidity, financial stability confirm the ability of most enterprises to repay current debt at the expense of existing current (current) assets, an uninterrupted production process.
2.5. SWOT analysis
At the moment, the Indian consumer goods market is in an ambiguous situation.
On the one hand, the suspension of activities and the withdrawal from the market of a number of foreign players, as well as the reduction of competition due to the bankruptcy of the least stable companies, enable strong players to strengthen their positions, occupy the vacant market segment and increase their market share. In addition, the trend of abandoning brands and growing demand for goods from local manufacturers allows us to diversify supplies and reduce dependence on monopoly suppliers without the threat of a negative reaction from the consumer.
On the other hand, all companies will experience difficulties due to a decrease in effective demand, disruption of supply chains and rising costs, as well as disconnection of the usual channels of advertising and promotion. However, timely adaptation of the company to changing conditions can open up new development opportunities through diversification of sales channels and ways to promote and expand the range of goods and services.
...
2.6. Forecast of the volume of wholesale trade in consumer goods until 2026
In 2022, economic recovery was expected in India: at the beginning of the year, the Central Bank and the Ministry of Economic Development predicted GDP growth by ...%. However, the start of a special operation in Ukraine and the introduction of unprecedented sanctions provoked the development of a new crisis, which, according to experts, could take years to get out of.
...
According to GidMarket, the development of the wholesale trade market in India will largely depend on the restructuring of supply chains on external routes and the reorientation of business to other suppliers.
...
2.7. Consumer Goods Retail Volume Forecast to 2026
Analysts estimate that the consumer goods retail market in 2022 will ...
...
3. Analysis of the impact on the industry of state aid to the current date
On March 4, 2022, the State Duma adopted a bill of the Government of India to support citizens and businesses under sanctions, according to which the Government receives the authority to determine the specifics of regulation in the areas of:
small and medium-sized businesses (SMEs) - in terms of changing the conditions for classifying legal entities and individual entrepreneurs as SMEs;
state and municipal control, to establish features for licensing, accreditation, attestation, conducting qualification exams, state registration, as well as other permitting regimes
on establishing the features of assessing the conformity of products put into circulation in India with the requirements of technical regulations, as well as the features of importing products into India subject to mandatory confirmation of conformity;
to establish features in the field of creating tourist infrastructure facilities.
In addition, the document includes a number of amendments in the following areas:
...
4. Opportunities offered by the current crisis
During any economic crisis, competition is reduced due to the withdrawal of the least stable companies from the market. At the same time, the number of takeovers of small players by larger ones is growing and there is an increase in consolidation in the industry. However, in the current crisis in the consumer goods market, an incredible window of opportunity is opening up. As a result of the exit from the market of a number of foreign companies, entire segments are released.
...
Thus, in the consumer goods market, competition has already significantly decreased in many segments, while consumers are generally positive about new brands. Accordingly, the following possibilities open:
- Increasing your market share and capturing new segments.
- Diversification and expansion of business.
- Supply diversification.
- To implement these tasks, you can use the following tools:
- Import substitution.
- Collaborations and cooperations.
- Expansion of the range of goods and services.
Import substitution in the Indian market is primarily aimed at improving economic security. Accordingly, the first steps in this direction were to stimulate key enterprises in strategically important industries. Sanctions imposed by Western countries in 2014 prompted the government to develop more ambitious measures that cover other industries.
...
The vacated niche can also be filled by diversifying supplies and expanding the range of goods and services.
Under the current conditions, diversifying supplies and expanding the range of products from different manufacturers from several countries can be a good way to reduce the risk of disruption in the delivery of goods. In addition, plans to legalize parallel imports, which were announced by the Ministry of Industry and Trade, open up opportunities for organizing the supply of brands that have left the market.
...
Thus, when choosing one or another opportunity, it is necessary to evaluate not only your own capabilities, but also the characteristics of your market/segment, and take into account consumer demand trends. At the same time, it is necessary to understand that those companies that will act quickly and decisively can take the most advantageous position in the market. Moreover, the likelihood of resuming the work of foreign brands is still high.
It is also necessary to note the opportunities that open up during the adaptation of evacuees in India:
Work force. The evacuation affects all sectors of society, respectively, specialists in various fields will come to India, who will make less demands on working conditions and pay.
Potential consumers. People arriving with a minimum set of things will be forced to purchase goods for both daily and long-term consumption.
5. Stay or go to other areas?
With the uncertainty prevailing in many market segments, many entrepreneurs are faced with the question of whether to continue to develop their business and try to stay afloat or consider options for goods and services that are more in demand at the moment.
At the same time, one must understand that there are goods and services for which there is a stable demand at any time, and there are temporary niches that have arisen as a result of the crisis.
Accordingly, when making a decision, it is necessary to carefully analyze the current situation and opportunities for development in the current or new area, weighing all the arguments in favor of the current or new area.
5.1. Arguments in favor of the current sphere
The main arguments in favor of the current sphere:
- Loyal customer base
- Well-established supply chains.
- Established sales and promotion channels.
- Clarity and familiarity of all processes.
- Reputation.
A developed business implies a well-functioning and understandable mechanism of work at all stages of activity, a good client base, as well as a certain reputation that has developed as a result of interaction with partners and consumers.
Even in times of crisis and declining demand, consumers are more loyal to already proven goods and services, so it is easier to establish interaction with them. In addition, in modern conditions, debugging an existing supply chain is easier than starting everything from scratch.
Of course, taking into account the possible change of suppliers and the replacement of the usual sales and promotion channels, efforts will have to be made to normalize business processes. However, other advantages can neutralize this inconvenience due to more scope for activities in an already familiar environment.
5.2. Arguments for moving to other industries
The main arguments in favor of changing the industry:
- Higher demand for goods/services.
- stable demand.
- Low competition.
- Lower operating costs.
- The best state support.
The main argument in favor of moving to another industry is a better economic situation due to greater demand for goods / services, stable demand and lower costs. However, it must be borne in mind that in such areas during a crisis, increased competition is possible. Accordingly, the transition to another industry will be justified only if a new direction is developed, or if the company has an exclusive, fundamentally new offer.
6. Stabilizing recommendations for distribution and trading companies in the consumer goods sector
6.1. Strategy
In a crisis, it is necessary to understand that a drop in demand is inevitable and the company must be ready for any, even the most negative, development of the situation. To adapt activities to the new reality, a well-thought-out strategy is needed, the development of which must take into account the following:
The main goal is to survive and maintain its market share, so the priority is to keep sales at the level necessary to minimize losses.
Growth and development are secondary tasks, the implementation of which is possible only under favorable conditions.
To analyze possible scenarios, it is recommended to create an economic model of the company.
...
The presence of such a program and a predictive model will allow the company and its employee to go through the crisis with minimal losses and stress.
6.2. Team
To overcome the crisis, the full mobilization of all resources is necessary. The key resource of any company is employees, and a close-knit team is the key to survival. Accordingly, it is very important that there are no disagreements in the team, especially at the level of top management. Each of the key employees should be maximally focused on results and confident in the future.
At the same time, it must be understood that reducing personnel costs is an inevitable step that must be approached very carefully so as not to encounter problems in the future. It is critical to evaluate company employees in terms of their usefulness to the company, their interaction with others, their motivation to work and loyalty to the company.
...
1 group of employees must be fired as soon as possible so that their position does not have time to influence the rest.
Group 2 is the basis of a single team. With each of the key employees it is recommended to have a conversation at the management level with an explanation of the real situation in the company and interest in them. This approach will increase their confidence, motivation and create a sense of security.
3 group of employees, a kind of reserve. On the one hand, these are candidates for dismissal, in case the situation worsens. On the other hand, they can be used as a driving force, redirecting their activities in a direction more necessary for the company. For example, to develop and implement new areas of activity.
It is very important to remember that any changes that relate to personnel (especially linear ones) must be introduced very carefully, only if you are completely sure that they are necessary, carefully explaining the motivation. Employees of the company must maintain a sense of security so that they can focus on work, and not think about a possible dismissal and look for a new job.
It is necessary to prepare for staff reduction in advance: to determine the conditions under which this will need to be done, and the group of employees whose dismissal will have the least impact on work. There may be several such lists in accordance with various development scenarios.
6.3. Assortment policy
In times of crisis, most consumers cut their spending. At the same time, savings are most often achieved by searching for goods/services at a lower cost. Accordingly, it is recommended to revise or supplement the assortment in the direction of the mass segment or "economy class" goods.
Expanding the range of goods of lower price segments will increase the target audience and attract new customers. However, in order to retain its regular customers, it is very important to replace the main assortment without a noticeable loss in the quality of goods.
In some segments, to expand sales, it is possible to introduce tariffs offered to customers to choose from: economy, standard, premium. In this case, it is important to convey to customers how exactly the versions of one product differ. For example, equipment, size, power or other characteristics. The advantage of this strategy is that if there is a choice and understanding of the difference, customers more often choose the middle price segment. In addition, this approach allows you to expand the target audience and attract different categories of consumers.
At present, it is important to take into account the situation that is developing in logistics. In the context of the imposed sanctions, the delivery of a number of imported goods may become impossible, or its cost may exceed the cost of the goods themselves. Accordingly, it is necessary to analyze the demand for such goods and determine the critical level of cost for the consumer, and it is also worth looking for a replacement among domestically produced goods, in China, India or other countries that have not supported the sanctions.
In addition, in the conditions of the departure of a number of foreign companies, entire product niches are being vacated on the market that can be occupied. Among the most promising areas that have lost part of the range of foreign players:
- Household chemicals, personal hygiene products, cosmetics.
- Clothing.
- Goods for pets.
At the same time, experts recommend not completely changing the usual assortment, but supplementing it with goods and services that are in great demand at the present time.
6.4. Advertising support
Advertising support during a crisis is very important and is not an item of cost reduction. Research results show that during a crisis, people want stability and trust more those companies that do not disappear from the media space.
...
It is also worth considering the advantages of marketplaces compared to the site of a separate company due to the huge range of products, loyalty programs, convenience and reliability.
6.5. Financial management
In a crisis, most companies experience a constant shortage of operational financial resources. Accordingly, financial management becomes the main function of the company's management.
The following is recommended:
...
6.6. Working with debtors
In connection with the increased probability of bankruptcies of clients, as well as delays in payments, it is necessary to reconsider the principles of working with debtors. For this it is recommended:
...
Separately, it is worth noting cases when the availability of cash flow from customers is critical for the company, for example, to pay off debts or loans. In such a situation, it is possible to introduce special conditions for clients: a bonus for the absence of debt and / or additional discounts when working on prepayment.
6.7. Clients
In a crisis, the main task is to retain existing customers and keep cash flows from them. We need not quantitative, but qualitative work with the client base. Accordingly, it is necessary to change the priorities of the work of sales managers and reorient their motivation to strengthen cooperation, from finding and attracting new customers.
At the same time, it should be understood that customers are also in difficult conditions and it is very important for them to respond in a timely manner to changing market conditions. Accordingly, to retain customers, close interaction is necessary to respond in a timely manner to changes in demand and increase product turnover.
...
6.8. Partners and suppliers
The current crisis is creating challenging situations throughout the supply chain. And the position of many manufacturers is rather difficult due to problems with the supply of raw materials, blocking of financial resources, suspension of activities, etc. Accordingly, overcoming the crisis is a joint task of manufacturers and distributors, which requires constant interaction to develop special programs and conditions for reducing prices and increasing loans.
...
6.9. Costs
An important point of any anti-crisis plan is the optimization of expenses in the future to the maximum level necessary for the functioning of the company. The cost reduction plan should be phased, designed for different developments of the situation, while affecting all departments and functions of the company.
The head of each department must thoroughly understand the costs of his unit, assess their necessity and reasonableness, and present his plan to reduce the costs of the department by a realistic percentage.
...
A good opportunity to save costs is business digitalization and business process automation. The development of an online ordering system and the use of digital assistants can significantly reduce labor costs and human resources in the field of e-commerce. In retail, a similar effect can be achieved using a self-service system, in particular self-service checkouts or darkstore stores. Also, to optimize management accounting and improve data security, it is recommended to use an analytics and project management system.
For companies with a turnover of at least several tens of millions of euros per year, it is advisable to introduce the function of financial controlling - an employee responsible for analyzing costs for all departments in terms of their expediency and validity, as well as opportunities for reducing them. The salary of such a person is usually paid back many times over by reducing costs, especially those associated with employee abuse.
6.10. Investments
In this situation, it is necessary to re-evaluate all launched investment programs and leave only those that lead to a direct cost reduction or in any case increase the economic efficiency of the company and pay off within a few months.
The same principle should be followed when considering any new investment programs - to accept only those that have a very short payback period, and also lead to a clear cost reduction or increase in income, even taking into account the fall in market demand.
...
It should be noted that in a crisis, customer service fades into the background; special prices or credit conditions are much more important. Accordingly, it is possible to close additional offices and branches of the company, which exist specifically to improve customer service. However, this should be done only carefully, weighing the loss of investment and probable losses.
6.11. Planning
Traditional sales planning in the face of an unpredictable decrease in demand is not only useless, but can also lead to losses if purchases are made from planned sales. When implementing such a scheme, it is possible to purchase goods that will not meet the changed demand. Accordingly, it is recommended to evaluate the existing planning system in the company for compliance with its crisis conditions. In particular, particular attention should be paid to the following factors:
Does the planning system include the ability to quickly respond to changes in market demand, incl. drop in sales.
Is the planning system connected with purchases and what is the risk of serious problems for the company in case of repurchases under inflated plans. If the company's processing period exceeds 1,5-2 months, then repurchase for such a period can lead to a cash gap.
Is the planning system connected with the financial plans of the company and how adequately reflects the end-to-end relationship: sales-purchases-stocks-cash flow.
If the planning system does not meet these criteria, it is recommended to create a model for operational planning and situation analysis. The existing planning system is recommended to be used with caution, due to the fact that complex and advanced models usually do not work in crisis conditions.
It should be noted that in a crisis, plans should be reassessed as often as possible in accordance with the changing situation. At the same time, the planning period should be as short as possible, since long-term planning during a crisis is impossible. You can link the minimum planning period to the average processing time (the period between the execution of an order and the delivery of goods to the warehouse by suppliers).
6.12. Motivation
During a crisis, the motivation of employees should correspond as much as possible to the goals and objectives of the company for this period. Therefore, it is advisable for sales managers to introduce a significant share of motivation from the receipt of funds, and not from shipment, as well as significant write-offs from salaries in case of large delays.
For employees of the purchasing department, it is possible to introduce a motivation system related to the volume of the warehouse (inversely proportionally) or the turnover of goods (directly proportionally). More complex schemes requiring specific design are also possible.
The introduction of a new system of motivation for the crisis period should be carried out with the obligatory informing of employees
At the same time, it should be noted that since the crisis does not affect individual companies, but entire industries and the economy as a whole, one should not be afraid of a serious outflow of personnel due to reduced payments. In the current situation, only very valuable personnel will be able to find better conditions. That is why a separate approach is needed for key personnel, as mentioned in paragraph 6.2.
6.13. Purchases and stocks
A large warehouse is a competitive advantage in the market in a stable situation, but during a crisis, the costs of maintaining it are unjustified and become a threat.
When evaluating stocks and drawing up purchase plans, it is recommended to conduct ABC and XYZ analyzes to determine the most profitable and most often purchased product groups in order to focus on them. Sell the rest of the items. At the same time, it is necessary to evaluate the monthly cost of holding low-liquid inventory and the cost of funds frozen in them, and compare it with the discount that the company can provide customers for a quick sale of this product.
When selling a warehouse, it is recommended to first of all offer special conditions to key and regular customers, which will help maintain their loyalty. And only after careful work with the client base, put the remaining goods on the market.
Procurement in a crisis should also be carried out on the basis of crisis principles:
- Maximum purchases for a specific delivery to the client.
- Compliance of the purchased goods with actual demand.
- Maximum sale of all old stock.
- The presence of minimum stocks for the maximum probable volume of sales.
- The minimum possible planning period and the most frequent re-evaluation of sales and purchase plans.
6.14. Government agencies and taxes
Refusal to pay taxes even in a crisis, of course, is unacceptable. Despite the fact that the possibilities for tax audits are currently limited, this process should not be left to chance. In the current environment, it is worth reviewing certain tax cut instruments. For example:
- Change/selection of optimal taxation.
- Involvement of autonomous performers (individual entrepreneurs and self-employed).
- The use of agency schemes.
- Other reorganizational and restructuring changes (liquidation and / or transformation of a part of a legal entity).
For importers who were engaged in gray imports, the crisis could be a good opportunity to switch to white trade, if parallel imports are legalized. This situation can be used to take a good share in the market, while "whitewashing" your business.
It must be understood that during the crisis there will be a strict nationalization of certain industries, and during the crisis, demand in certain segments (especially B2B) will be seriously redistributed towards state bodies and state-owned companies. Therefore, organizations that have not previously participated in public and commercial procurement need to assess their readiness and compliance with the requirements of 44-FZ and 223-FZ.
6.15. Interaction with banks
Big risks for business in a crisis are associated with loan payments. A significant threat to the activities of companies will come from banks, which may require the repayment of loans at the expense of the company's own funds, refusing to restructure the debt.
A separate risk is the revaluation of collateral (especially in connection with changes in real estate prices). It is necessary to predict for which loans and when the requirement to report collateral is possible and what to do in this case.
At the moment, there is a six-month moratorium on bankruptcy at the request of creditors. However, in order not to face serious problems after its expiration, it is recommended to work consistently (possibly at the level of founders) with the management of various banks to convince them of the financial stability of the company.
At the same time, when negotiating with banks, it is important to understand their disinterest in bringing the situation to an extreme, as this will deprive them of their profit on interest, will require reserving the full amount of the loan and efforts to sell collateral and collect funds, which is difficult in a crisis. Therefore, you can try to take a principled position, but you need to understand that this will ruin relations with the bank in the future.
Conclusion
This program describes a tripod vision of the development of the economic situation in the country in the near future. At the same time, the analysis of the situation is calculated for the current date and does not take into account such extreme scenarios as intervention in a military conflict by third countries or the introduction of a complete trade blockade. In the current situation, there are not enough prerequisites for such a development of events, although they cannot be completely ruled out either.
...
At the same time, it is worth remembering that any crisis is a chance for strong companies to reach a new level of development. And the main element of strength is the well-coordinated professional work of management and the adoption of the only correct operational decisions.
Diagrams
Diagram 1. Dynamics of the number of Indian SWIFT users 2010-2020, pcs.
Diagram 2. Dynamics of the population of India, 2012-2022, million people
Chart 3. India Population Forecast 2022-2026
Diagram 4. Dynamics of average per capita income of the population of India for 2010-2021, Rs.
Diagram 5. Dynamics of real disposable money income of the population of India, 2010 - 2021, %
Diagram 6. Forecast of the dynamics of real money income of the population of India, 2022 - 2026, %
Chart 7. Ratio of consumer behavior strategies during a market crisis in March 2022, %
Chart 8. The dynamics of the US dollar against the rupee, 1997-March 2022, Rs. for 1 US dollar
Diagram 9. Dynamics of changes in the key rate in 2013-2022, %
Diagram 10. Dynamics of the market volume of the wholesale trade in consumer goods in India in 2013-2021, trillion Rs.
Diagram 11. Dynamics of the volume of the retail trade in consumer goods in India in 2013-2021, trillion Rs.
Chart 12. Profitability before tax (profit of the reporting period) in the field of trade in consumer goods, India, 2019-2021, %
Chart 13. Current Liquidity (Total Coverage) by Consumer Goods Trading Industry, India, 2019-2021, times
Chart 14. Business activity (average receivables turnover period) in consumer goods trading, India, 2019-2021, days days
Chart 15. Financial sustainability (security of own working capital) in the field of trade in consumer goods, India, 2019-2021, %
Diagram 16. Forecast of the volume of the wholesale trade in consumer goods in India in 2022-2026, trillion Rs.
Diagram 17. Forecast of the volume of the retail trade in consumer goods in India in 2022-2026, trillion Rs.
Tables
Table 1. Indian Services – Alternatives to SWIFT, April 2022
Table 2. Assessment of sanctions restrictions in the field of air transportation, April 2022
Table 3. Assessment of sanctions restrictions in the field of maritime cargo transportation, April 2022
Table 4. Assessment of sanctions restrictions in the field of road freight transportation, April 2022
Table 5. Distribution of spending on goods/services depending on the strategy of consumer behavior, March 2022
Table 6. Categories of goods/services by degree of protection in a crisis
Table 7. Crisis changes in the structure of retail trade, 2013-2020, %
Table 8. Profitability of sales of the consumer goods trade industry, India, 2019-2021, %
Table 9. Absolute liquidity of the consumer goods trading industry compared to all sectors of the Indian economy, 2019-2021, times
Table 10. SWOT analysis of the consumer goods market
Table 11. Analysis of the impact on the industry of the state aid proposed to date
All reports