Mumbai: Fast moving consumer goods (FMCG) companies are shifting their focus to consumer promotions to drive volume in a sluggish market while being cautious on investing heavily on advertisements to save cost, said company executives and industry watchers.
With slump in consumer demand, most firms are stepping up their efforts to entice consumers through discounts and offers while incentivizing trade partners like distribution partners and wholesalers to push sales, according to analysts. Such measures work better at the time of slowdown as consumers look for more value while cutting back on their overall spends, they added.
In addition, falling input costs of certain key raw materials like crude oil and palm oil in the last few quarters have also enabled consumers to pass on the benefits either in the form of discounts or special offers, company officials said.
"Promotions work better in a slowdown where the competitive intensity is high as the entire market is fighting for a limited share of wallet of the consumer. In such a situation, the trade needs to be lubricated better to push stocks in the market. Also, consumer is seeking better value and so consumer promotions work much better," Mohit Malhotra, chief executive offer (CEO), Dabur Ltd told investors on November 5.
According to a September report by Credit Suisse, consumer goods companies are likely to post their worst revenue growth in the last 15 years as the slowdown in the sector intensifies due to lower farm incomes, liquidity crunch, and rising unemployment.
Dabur’s advertising and publicity spend on a standalone basis has remained flat at ₹111 crore in the second quarter of this financial year. However, Malhotra said the company, which sells hair oil and fruit juices among other things, has redirected its ad spends more towards core brands while opting for consumer promotions for the rest. For instance, some of its current popular offers include a free Dabur honey along with each 1 and 2 kg of Dabur Chyawanprash or buy-one-get-one-free for every Honey Squeezy packs.
For Godrej Consumer Products Ltd (GCPL), which saw a 22% decline its advertising spend to ₹161.09 crore in the September quarter, allocation on consumer promotions have gradually increased in the last one year, said Sameer Shah, Head- Finance (India & SAARC) of the Mumbai-based firm.
Last quarter, the company ran promotions of its flagship Godrej No. 1 soap by giving away pack of 5 for ₹68 exclusively in north western Indian markets. Besides, its Goodknight Active plus LV were sold at discount for ₹65 in North and Central India markets as against its regular price of ₹72.
“Channel partners and sales promotions would have gone up by 50-60 basis points on a year on year basis in the first half of the year. Spend on consumer offers would have gone up by 100-150 bps as percentage of sales. Now there are new ways of engaging with the consumers," Shah said, adding that focus on digital and e-commerce have also helped bring down the advertising costs to an extent.
Similarly for Glaxosmithkline Consumer Healthcare Ltd (GSK), which makes Horlicks, advertising and promotion spends have remained flat at ₹139.66 crore in the September quarter. Savings on ad spends as well as cost optimisation have helped the company improve margin expansion by 162 bps, said a report by Edelweiss.
“It depends from one company to another but generally, whenever there is a slowdown FMCG firms would resort to consumer promotions. Companies which have seen good margin expansions would have a healthy advertisement spend. But those margins have not been great their strategy would be different," said Abneesh Roy, executive vice president, Edelweiss Securities.
For the country’s largest FMCG company, Hindustan Unilever Ltd (HUL) and home grown Marico Ltd have not slowed down both on advertising and promotion budgets. HUL's advertising and promotions spend increased by 8% to ₹1196 crore, while Marico saw 12% rise to ₹219 crore.
Despite healthy ad spends in the last quarter, HUL has cut prices for some of its soap brands like Lux, Lifebuoy and Dove soaps by 4-6% in August, passing on the benefits of the lower input costs. The price reduction also came at a time when the company was witnessing modest demand in its beauty and personal care segment too.