What's the impact of migrant movement on retail FMCG consumption?

From buying local brands to change of loyalty and the need for trust, we deep dive to see how migrant labour movement has changed retail FMCG consumption.

The most visible aspect of the COVID-induced lockdown was the movement of labourers from big cities, where most of them worked as daily wagers, back to their villages. As per BloombergQuint, from March through May, around 10 million labourers migrated back to their villages.

The ones who migrated back to their villages, "did so because of lack of earning, and they didn't move with much savings," said Rashmi Berry, founder and managing partner, BrandStory Consult.

The combination of unemployment and meagre savings had an impact on retail FMCG consumption. Other factors that influenced this consumption include a fractured distribution network because of the lockdown, as well as a conservative financial outlook.

State of the market

COVID and the lockdown have made things worse for an already ailing Indian economy. But the rural market delivered a surprise with negative numbers. Anupam Bokey, former CMO, Too Yumm!, told afaqs!, "Last year (2019), the rural market, for the first time in the past six, seven years, was worse off than urban markets. It always used to be five to six per cent higher, but last year, it was five to six per cent lower."

Ruchir Sharma, chief global strategist, Morgan Stanley Investment Management, in an opinion piece, for The New York Times, summed up the situation, "... estimates suggest India's economy could contract by nearly six per cent this year (2020), making this the worst downturn in the country’s post Independence history."

Damaged demand

An already faltering economy, made worse by a pandemic and lockdown, is a perfect cocktail for anxiety and pessimism. People, during such times, hoard more and reduce their spending. So, will the migrant labourers do the same once they reach their villages and hometowns?

Rajat Wahi, partner, Deloitte India, doesn't see the situation with such a negative lens. He believes in some level of "rural uptick in consumption" as the returned workforce will stay for a couple of months, while being given both ration and money.

But, what will they demand? It's not that the products one has grown accustomed to in the city will be available in the village. And this is exactly what brands will have to figure out.

"Workers, who’re used to certain brands in the city, may go back and seek the familiarity and comfort of some of those same brands in their villages, and tier 2 and 3 cities," remarked Navonil Chatterjee, joint president and chief strategy officer, Rediffusion Y&R. He put the onus on the brands to ensure that their distribution and delivery channels are well oiled and ticking.

What do you want?

While workers will, of course, look for comfort and familiarity in goods, they will also ensure that they buy family essentials first. Bokey mentioned essential items such as dal, aata, and chawal that will see a sharp spike in demand. Also, we see an increased demand for items like hand sanitisers, wash, and soap.

Mythili Chandrasekar, a consumer behaviour and brand strategy enthusiast, took a more sombre route. "I doubt toothpaste, or soap is on the top of mind for them (returned workers)." She stated that the workers were more anxious about figuring out how to feed their families, and the uncertain future.

She, however, noted that "everything, other than food, will be deprioritised," and wondered if the second-hand goods market will see a pick up in demand.

While essentials will enjoy a spike in demand, anything that's premium, or can be used for social engagements (cosmetics, or beauty segment) will experience a dip in demand... As Wahi, of Deloitte India, says, "People may trade down, or may not use them, or spend less on them."

Golden age for hyperlocal brands?

Not all goods from big brands can reach the villages because the lockdown has caused immense stress to the supply chains. So, is it the dream scenario for local and hyperlocal brands?

K.V. Sridhar (or 'Pops', as he is popularly called), global chief creative officer, Nihilent Hypercollective, said breakage in the supply chain and manufacturing affected big brands, and the local unorganised sector has gained from it.

He made an interesting point about brand penetration. Many categories have very deep rural penetration, but they've got two enemies: One is the spurious lookalike brands. Second is the local brands.

For instance, the 'XXX' soap he told us in Andhra is larger than Rin and Wheel put together. "It's a terrible detergent soap, but its advertising speaks about certain values, it's available for half the cost, and speaks to the people in their local language. So, the connection is higher, and it took off. These are the enemies."

But this damage to distribution and supply chains won't translate into a golden age for hyperlocal brands. MG Parameswaran (Ambi), brand consultant, and founder, Brand-Building.com, feels that once these channels are restored to their full might, big brands will rule again.

Factors like trust and hygiene play a big role in demand and purchase. Yes, people may switch loyalties if a brand isn't available, but won't compromise on these factors.

However, there's a caveat here, which Berry mentioned. If the labourers don't have enough purchasing power... they will buy unbranded products (loose oil, one coil of mosquito repellent, instead of the entire pack), and even resort to home-based stuff.

The migrant movement has, indeed, made big brands squirm to get their distribution strategy right, while local players enjoy the surplus demand. But, all this seems to be a short-term event.

Lack of employment opportunities will make the labour force return to the cities (the movement has already started), because sooner or later, one will learn to live with the lockdown, and the industries/economy have to restart.