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Major FMCG Brands Readying For Coronavirus Impact: Analysis

Published on Feb 13 2020 1:40 PM in Coronavirus tagged: Featured Post / Nestlé / Diageo / Unilever / Pernod Ricard / Remy Cointreau / Coronavirus

Major FMCG Brands Readying For Coronavirus Impact: Analysis

With the latest figures indicating that around 60,000 people have now been infected with the coronavirus, the majority in China, major FMCG brands are making efforts to mitigate the impact of the epidemic.

On Thursday, Nestlé's Mark Schneider noted that the Greater China region accounts for around 8% of the company's sales, adding that it is "too early" to quantify the financial impact of the outbreak.

Working Closely

"We are working closely with the Chinese authorities as they take measures to contain this epidemic," Schneider said, "building on our significant experience and expertise on the ground. [...] We stand in solidarity with the Chinese people and are working hard to ensure our nutritious food and beverages continue to be widely available."

At the end of January, Unilever, which saw a 5.3% increase in underlying sales in its Asia/AMET/RUB division in the full year, also said that it was keeping a close eye on the virus as it developed in China.

"We're monitoring the effects of coronavirus, most importantly, on our people, but we're also mindful that it's likely to affect our businesses," chief executive Alan Jope told an analyst conference call.

"It's too early to quantify, but we already know, for example, that it will have a commercial impact, about a fifth of our business in China's professional foodservice, and that's likely to be significantly impacted by a drop in out-of-home consumption."

Elsewhere, Procter & Gamble's chief financial and operating officer, Jon Moeller, added that the company is monitoring the virus' spread closely.

“It can also affect consumer confidence and large parts of the market. It can affect travel, which does affect our business, and so it’s one of the many pieces of volatility that’s just important as we think about the prospects for the future," he commented.

Drinks Impact

Drinks firms appear to be particularly impacted by the epidemic, with Pernod Ricard cutting its full-year profit growth outlook for 2019/20 due to the spread of the virus.

The company generates 10% of its sales in China, and noted in its half-year results that it is too early to predict what the lasting impact on its performance will be.

It said that it expects 'significant impact' in off-trade outlets in China in January and February, followed by a recovery in March, while the on-trade is not expected to get back to normal until June. Reduced passenger numbers mean that travel retail will also take a hit in Asia.

It has estimated a 2% impact on full-year group 2020 sales, while profits could be impacted by as much as 3%.

Read More: Moody's analyses impact of coronavirus on drinks' firms profits

Luxury spirits firm Rémy Cointreau is also counting the cost of the epidemic, with the business suspending its outlook guidance. The group posted a 6.5% drop in organic net sales for the first nine months of the year.

"The potential impact of the coronavirus, if any, will be significant for our business because we are exposed to China," the group's chief financial officer Luca Marotta told analysts. "We do not have a quantified scenario but clearly we are concerned as China is a major growth engine."

Elsewhere, Diageo's chief financial officer Kathy Mikells also referenced the virus as the company's full-year results were announced, saying, "We continue to expect organic operating profit growth to be roughly one percentage point ahead of net sales, again, consistent with our medium-term guidance.

"However, I would note that we would not be immune from significant changes to global trade policy as well as the evolving coronavirus situation in China, and we continue to monitor both closely."

Local Concerns

In China, as you can imagine, the virus' impact is likely to be felt most significantly, with retail giant Alibaba likely to bear the brunt of the 'closed' nature of Wuhan province, not to mention the impact on production and logistics.

On an earnings call in mid-February, chief executive Daniel Zhang said that the extended Lunar New Year 'holiday' that was imposed as the virus began to spread, has led to issues for merchants when it comes to order fulfilment. In addition, food delivery orders are down year-on-year due to the closure of restaurants, while its Hema supermarkets are also experiencing shortages due to limited delivery capacity.

"In response to the coronavirus, we mobilised Alibaba ecosystem’s powerful forces of commerce and technology to fully support the fight against the outbreak, ensure supply of daily necessities for our communities and introduced practical relief measures for our merchants," Zhang said in a statement to accompany Alibaba's most recent set of quarterly results.

"No matter past, present or future, we remain true to our mission and we will support our merchants to overcome this challenging time together.”

In the quarter to 31 December, Alibaba reported revenue of RMB 161.46 billion (€21.3 billion), a 38% increase on the corresponding quarter the previous year, boosted by its annual Singles Day event.

Trade Show Sector

The international trade show sector has been particularly impacted by the epidemic, with Barcelona's Mobile World Congress arguably the biggest casualty – this year's show, which was due to start on February 24, has been cancelled following a pullout by several major exhibitors.

On the retail side, EuroShop, the world's biggest retail trade fair, will be taking place next week in Düsseldorf, but the organisers have outlined a number of precautionary measures on the event's website, saying it has introduced additional hand disinfection stations, will clean contact surfaces more regularly, and has increased its medical facilities at the Messe Düsseldorf venue.

In China, a myriad of events have been postponed, including the China Commodity Markets Insight Forum 2020 (scheduled for February 19 and 20), the Food and Beverage Innovation Forum 2020 in Hangzhou (scheduled for April 15-17), and the China Development Forum, which was scheduled for March.

As to whether these events take place at all will rest with authorities' efforts to contain what has been thus far exponential growth for the virus.

© 2020 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine

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