Consumer goods firms tap promotions to drive up volumes2 min read . Updated: 13 Nov 2019, 12:21 AM IST
- Falling input costs of raw materials in the past few quarters have also enabled firms to pass on benefits to buyers
- FMCGs are likely to post their worst revenue growth in 15 years as the slowdown intensifies on lower farm income, liquidity crunch and rising unemployment
Fast-moving consumer goods (FMCG) companies are shifting focus on consumer promotions to drive volumes in a sluggish market, even as they remain cautious about investing heavily on advertisements to save costs, company executives and industry watchers said.
With a slump in consumer demand, most companies are stepping up efforts to woo consumers with discounts and offers, while incentivizing trade partners, such as distributors and wholesalers, to push sales, said analysts. Such measures work better at a 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 material, such as crude and palm oil, in the last few quarters, have also enabled companies 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 the consumer’s wallet. In such a situation, trade needs to be lubricated better to push stocks in the market. Also, consumers are seeking better value and so consumer promotions work much better," Mohit Malhotra, chief executive officer, Dabur Ltd, told investors on 5 November.
According to a Credit Suisse report for September, FMCGs are likely to post their worst revenue growth in the past 15 years, as the slowdown intensifies due to lower farm income, liquidity crunch and rising unemployment.
Dabur’s advertising and publicity spend on a standalone basis remained flat at ₹111 crore in the second quarter. However, Malhotra said the company, which sells hair grooming oil and fruit juices, among others, has redirected its advertisement spending towards core brands, while opting for consumer promotions for the rest. For instance, some of its current popular offers include a bottle of free Dabur honey with every 1-2 kg pack of Dabur Chyawanprash, or the buy-one-get-one offer for Honey Squeezy.
Godrej Consumer Products Ltd (GCPL) cut its year-on-year advertising spend by 22% to ₹161.09 crore in the September quarter. However, Sameer Shah, head, finance (India and SAARC), GCPL, said allocation on consumer promotions have gradually increased in the past one year.
The exclusive offer on the flagship, Godrej No. 1, across north-western markets, saw the company selling a pack of 5 soap bars for ₹68. Its Goodknight Active plus LV were also sold at a discount in northern and central India—down from ₹72 to ₹65.
“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 bringing down the advertising costs.“It depends from one company to another, but generally, whenever there is a slowdown FMCG firms resort to consumer promotions. Companies which have seen good margin expansions would have a healthy advertisement spend. But the strategy for those with poor margins, is different," said Abneesh Roy, executive vice president, Edelweiss Securities. However, FMCG majors, Hindustan Unilever Ltd and Marico Ltd have, not cut on their advertising and promotional budgets. HUL’s ad spends increased by 8% y-o-y to ₹1,196 crore, while Marico reported 12% rise to ₹219 crore.