Localised lockdowns, nationwide implications

Re-impositions have a knock-on effect, disrupting networks nationwide, say experts.

ANI
NEW DELHI | KOLKATA: Localised shutdowns, necessitated by Covid-19 outbreaks in clusters across the country, are taking a toll on consumer goods, automobile and ecommerce companies. This comes as business is in the process of reviving after the nationwide lockdown, imposed on March 25, was eased in stages. Such re-impositions have a knock-on effect, disrupting networks nationwide. The worry is that further spikes in disease numbers could see such containment zones proliferating, multiple industry executives and experts said.

The Uttar Pradesh government said late on Friday that industrial units can remain operational during the state-wide weekend lockdown from Friday 10 pm to Monday 5 am. Industry executives said however that attendance and production capacity may take a hit at factories such as those of Oppo, Vivo and Dixon located in Noida and Greater Noida as the announcement came too late. LG India is also not sure if its plants in the state will function on Saturday and Sunday. The state government had earlier told factories that too would need to shut for the weekend.

Auto makers, looking to satisfy an unexpected surge in demand, expect this newfound enthusiasm to be dampened by local closures in states such as Maharashtra, UP, West Bengal, Assam and Bihar. Pune is also under lockdown.


Companies need to be far more agile
Apple had to temporarily shut its national distribution centre in Bhiwandi due to the lockdown in Thane near Mumbai, squeezing supplies to offline retailers, the executives said. Several other brands also have national warehouses in Bhiwandi and their networks have also been hit.

“Intermittent closure and reopening of states is disturbing the entire cycle of business. It takes a lot of time to streamline processes back to capacity,” said Vimal Kedia, chairman and managing director of packaging company Manjushree Technopack, a core supplier to Reckitt Benckiser, Coca-Cola, Procter & Gamble and Nestle among other home, personal care and healthcare makers. “The disruptions in one state have a trigger effect on the other markets as well, since there is interdependency in terms of labour and other supplies.” Companies have to learn to live with the unpredictability, executives said.

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“Consumer businesses need to be far more agile now as lockdowns are no longer uniform across the country and there is more unpredictability and volatility in the system,” said Saugata Gupta, managing director of Marico, which makes Parachute hair care products and Saffola edible oils. “In the first quarter, the situation was more predictable. Going forward, companies with deeper distribution network, innovative supply chain and broader retail outreach will do better at catering to evolving consumer needs.”

Impact on E-commerce
Warehouses of ecommerce companies such as Flipkart and Amazon also fall in such zones, hitting deliveries in several cities. Meanwhile, Navi Mumbai and Greater Chennai have gone back to only allowing the online sale and delivery of essentials. A senior executive with a leading marketplace said the local shutdowns have thrown the cash flows and business plans of small sellers into disarray. Another executive at a marketplace said local authorities are conducting random inspections for distancing and to see whether workers have the Aarogya Setu app on their phones. They are also said to have also shut several warehouses despite rules being followed. The impact of the mini lockdowns is spread across some of the larger markets, said George Angelo, chief executive of Bisleri, the country’s largest packaged water company. “Navi Mumbai is practically locked down and there is hardly any business--even groceries are limited,” he said. “The case is similar in Assam and parts of Odisha, which are very badly hit. We have heard that from today through the weekend, there will be complete closure in UP, besides a full lockdown in Pune as well.”

The consumer electronics market is operating at 80-85%, with the remaining stores closed due to local lockdowns, said Kamal Nandi, Godrej Appliances business head and president of Consumer Electronics and Appliances Manufacturers Association (CEAMA), which represents companies such as LG, Samsung, Sony, Hitachi and Philips.

Attendance levels are dropping at plants and business operations. With Covid cases increasing, factories are again falling short of workers, many of whom are still to return from their home towns and villages, said a senior executive at a large foods company. “We are planning to write to state governments to allow getting labour from locked-down states, if need be,” he said. Nandi said manufacturing capacities cannot be scaled up unless infection rates come down, since the lockdowns make it difficult for migrant workers to come back. In any case, capacities are constrained by Covid health and safety protocols.
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Brakes on auto
Auto sales are being impacted by local shutdowns in states such as Maharashtra, Uttar Pradesh, West Bengal, Assam and Bihar, executives said. They expect a 10% hit on sales from the areas under lockdown.

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“There has been an impact on sales in places where lockdowns have been re-imposed and if it extends further, there will be more disruption,” said Naveen Soni, senior vice-president, sales and service, Toyota Kirloskar Motor (TKM). “It is a matter of great concern. In Chennai, where the lockdown has now been lifted, we have seen consumers are still hesitant to come to dealerships.”

About 230,000 passenger vehicles were sold in the June quarter. Wholesale dispatches from factories to dealers stood at 153,000 units.

“While we have fared better in June, with retail sales close to 75% of pre-Covid levels, there are cities which are getting in and out of lockdown,” said Yadvinder Singh Guleria, director, sales and marketing, Honda Motorcycle & Scooter India (HMSI). “At present, 95% of our outlets are open, but it is very difficult to say they will remain open, and for how many hours, and on which days. Every place has its own set of restrictions. We are not working to full potential. It has become very difficult to predict how sales would shape up, any forecast we make is likely to go wrong given the uncertainties.”

Sales of passenger vehicles as well as two-wheelers are expected to decline in double digits in the current financial year.

Due to the current situation, LG Electronics is planning to increase daily manufacturing capacity to meet any supply chain gap so the channel is well stocked, said Vijay Babu, vice president, home appliances. Apple is said to be trying to re-route inventory to keep the supply chain running. Grofers CEO Albinder Dhindsa said the e-grocer is operating at a limited capacity in states where governments have announced intermittent lockdowns.

Dampening recovery
At a time when the retail industry is at 35% of last year’s business, these mini lockdowns are further dampening recovery and consumer sentiment, said Retailers Association of India (RAI) CEO Kumar Rajagopalan. “Supply chains are getting impacted due to lockdown decisions by the local administration,” he said. RAI has asked the government for a centralised mechanism for local lockdowns.

In Karnataka, the Ballari district administration has classified the JSW township as a containment zone. JSW Steel reported a 30% fall in crude steel production to 2.96 million tonnes in the first quarter of FY 21 from 4.24 tonnes in year earlier due to the restrictions. The company said average capacity utilisation dropped to 76% in June, largely due to the curbs in Ballari.

JSW Paints CEO AS Sundaresan said, “Localised lockdowns across Tamil Nadu, Andhra Pradesh and Maharashtra directly affected our demand as shops and markets are not allowed to be open and people movement to buy is restricted. These stringent lockdowns also limited inter-district movement of people and materials as additional permissions were required.”

(With inputs from Bhavya Dilipkumar)
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