‘FMCG sector can withstand Covid-19’
THE fast moving consumer goods (FMCG) sector is among one of the few sectors that could come out of the coronavirus pandemic with gains.
The global outbreak of the health pandemic, has significantly impacted earnings of most business entities, at least in the short-to-medium term.
With Zimbabwe’s initial 21-day lockdown extended to May 3, most businesses have been weighed heavily by the pandemic, but analysts say the FMCG sector — which, among other sectors, has been declared an essential service — could actually thrive.
FMCG firms that have a particular focus on basic commodities or “essentials” so to speak, are a relative safe haven compared to the broader market.
But luxury and discretionary FMCG providers and suppliers face greater risk exposure.
“We expect sustained demand for defensive mass market products such as maize meal, bread and hygiene products. The additional ‘free time’ from work will also result in an increase of secondary activities that will also complement food consumption during the lockdown.
“While the increase in mass market consumption will be offset, to some extent, by the decline in retail traffic (a result of reduced operating hours) these dynamics will benefit players that are extensively exposed to mass market products.
“Examples of well-placed players in Zimbabwe include food retailers such as OK Zimbabwe and Meikles’ Pick n Pay as well as listed FMCG manufacturers such as Innscor.”
Data from the local equities market seem to prove this point. An overview of trades on the Zimbabwe Stock Exchange (ZSE) last week show that the FMCG sector is one of the better performing sectors.
Over that period activity on the bourse was highest in Delta, Cassava and OK Zimbabwe, contributing 32, 95 percent, 13, 11 percent and 12, 52 percent, respectively as turnover totalled $46, 10 million.
Experts say a company’s stock market response and its income elasticity tend to have a strong correlation.