The Hindu Business Line : Consumer goods cos pump up promos to beat slump

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Hindustan Lever, Nestle, Pepsi, Coca-Cola... almost every big-time fast moving consumer goods (FMCG) major has been on a promotional overdrive this past one month, in what appears to be an aggressive attempt to push sales at a time when the industry has not been able to shake off the slump.

The last few quarters have not been great for the Rs 80,000 crore FMCG sector, with most categories witnessing either low or negative growth rates. The overall industry witnessed a decline of about 1.7 per cent, according to industry data. And even as the AC Nielsen/ORG retail audit figures for October and November indicate some growth, it is early days yet to pop the bubbly.

Certain key segments such as soaps, detergents, toothpaste and tea are still struggling to get on to the upward curve. Toothpaste, for instance, recorded negative growth of 9 per cent in the January to November period — reasons good enough for the promotional blitzkrieg.

Equity analysts attribute the current spate of promotions to saturation of demand in urban markets, coupled with poor rural offtake owing to poor monsoons. According to a Mumbai-based FMCG analyst, "Negative growth rates across categories have prompted companies such as Levers and Colgate-Palmolive to up their promotional spends."

Yet another reason being put forth for such promotions is the firming up of advertising rates. "With the World Cup, advertising rates are expected to remain firm. Unlike consumer durables companies, FMCGs have little direct association with the event. Though HLL and Pepsi have bought airtime during the World Cup matches, ad spends on television by other FMCG companies have not been substantial. Spending on promotions could be far more effective," said a Mumbai-based media planner.

A third reason could be lack of product differentiation. So, while advertising could help create brand awareness, promotions could help push sales.

But extensive promotions could be risky. Said Mr Jagdeep Kapoor, Managing Director, Samsika Marketing Consultants, "Promoting extensively may be good for challengers, but not for leaders. While companies seem to be doing this under pressure of competition, the net effect is neutralisation. Also, over promoting could lead to dilution of brand equity."

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