Consumer staples to see a shift away from premium categories until incomes recover

• FMCG firms likely to increase focus on value categories to cater to lower income levels
• Consumers to increasingly look for value in their purchasing decisions 

The demand for consumer staples or fast-moving consumer goods (FMCG) has recovered with the easing of lockdowns but people may increasingly look for value in their purchases amid slashed incomes, prompting the companies to offer discounts and promotions to lure consumers, specifically to their premium categories, Fitch Ratings said.

FMCG remains largely immune to economic downturns and the sector staged a faster recovery compared to many other sectors since the easing of lockdowns. But the consumers could become more selective when choosing products and could shun the premium versions, as their incomes have waned with many experiencing salary cuts and some remaining unemployed. 

The rating agency said this condition could force the FMCG companies to increase their focus on value categories, to cater to lower income levels. This will also prompt the FMCG manufacturers and retailers to increasingly offer discounts and promotions to drive demand until the consumer incomes recover. 

“We expect consumers to increasingly look for value in their purchasing decisions amid lower income levels. Consequently, there may be a demand shift away from premium products within categories,” Fitch Ratings said in a sector-wise assessment of the financial impact of the pandemic.

If the situation for consumer staples is such, the implications of lower consumer incomes could be more pronounced for the consumer discretionary category. The processed food giant, Keells Food Products PLC, on Monday reported 18 percent lower revenues in its first fiscal quarter ended June 30, 2020, compared to the same quarter last year. Sri Lanka’s low penetration levels of online sales and e-commerce generated much lower revenue from FMCG during the pandemic-induced lockdowns, despite the products were made available through online platforms and mobile delivery channels,  as FMCG came under essential services designated by the government, the rating agency observed. 

However, in economies where e-commerce is comparatively developed, such as the United States and Europe, consumer demand shifted to online during the pandemic, as the retailers saw their online sales soared.  

For example, the wealth of Jeff Bezos, the founder of Amazon—the Seattle-based e-commerce and digital streaming firm—has skyrocketed with the Amazon share price surging, as millions of people trapped at home by coronavirus lockdowns around the world turn to the online delivery giant to keep themselves fed and entertained.

Earlier this week, Fitch Ratings estimated its rated consumer staples companies to shed 6 percent to 7 percent revenue in the fiscal year ending March 31, 2021, compared to the year earlier, before recovering from the second quarter of 2021.  

The sector could surpass the pre-pandemic level revenues in fiscal 2022, supported by the easing social distancing requirements, a gradual pickup in economic activity and recovery in consumer demand, Fitch said.