FMCG firms go easy on trade offers, consumer promotions
PremiumCompanies typically incentivize retailers and shopkeepers in several ways, for instance, by offering them extra units of a product or discounts
New Delhi: Large packaged consumer goods are going slow on offers to the trade and promotions for consumers as they navigate inflationary pressures owing to commodity price hikes.
Companies typically incentivize retailers and shopkeepers in several ways, for instance, by offering them extra units of a product or discounts. For consumers, offers such as extra grammage and freebies are offered by FMCG companies. However, in view of input cost pressures, companies are looking for ways to trim costs.
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“We have also reduced some of the trade offers and promotions (that is, offers made to retailers for stocking products which include extra packs etc) and below-the-line initiatives with retailers and distributors. With that were able to manage profitability. We have taken a selective price hike in our portfolios, and it has given some benefits while reversing some of the trade promotions and schemes," said Ullas Kamath, joint managing director, Jyothy Labs that makes Pril dish wash liquid and Margo soap.
The company saw 6% jump in inflationary pressure in the March quarter. It mitigated this by selective price hikes apart from reducing trade offers and schemes on select brands. Kamath said commodities such as palm oil, raw materials used in detergents apart from packaging material have turned more costly.
Most companies have taken price hikes and reduced promotions to pass on inflation, said an analyst tracking the sector who did not wish to be named.
Prices of tea, cooking oil and soaps have increased over the last two quarters. Mumbai-based consumer goods company Godrej Consumer Products Ltd (GCPL) said it has delayed consumer offers planned for the first and second quarter.
Companies are also not looking at acquiring new customers or at new launches in the market as fewer consumers are spending time in stores given restrictions on mobility. “Companies will take a trade promotion dip right now, they will also delay consumer promotions and new launches because for new launches they want consumers in the store," said Aditya Goel, co-founder, Love in Store, trade activation and execution company that works with large fast moving consumer goods makers.
In a filing on its website, Marico Ltd listed prices of over 90 stock keeping units and variants of brands such as Saffola cooking oil oats, Parachute, Nihar—of them only four had consumer offers ongoing in April. In the March quarter earnings the company said it registered volume growth in its Parachute hair oil brand despite pullback on offers and price increases. “Parachute Rigids grew by 29% in volumes in Q4FY21 on a lockdown-affected base. The brand firmly held its ground, despite a pullback of consumer offers and MRP increases during the quarter, in response to the sharp inflation in copra prices," the company said.
Dabur India Ltd did not confirm whether it had withdrawn or cut back its trade offers and promotions. The company, however, said it will continue to pursue price hikes and undertake cost-cutting measures as inflation across commodity baskets eats into profitability.
The company is witnessing unprecedented commodity inflation of about 5-6% across agri-commodities like edible oils, herbs, spices and honey among others, besides hydrocarbons. “We have undertaken some calibrated price increases of around 3 per cent to mitigate this impact. However, it is not enough to offset the impact completely and we will look at another round of price hikes, going forward," said Mohit Malhotra the company’s chief executive officer.
Companies are also facing other challenges on ground such as supplying to stores that work under restricted timings and dealing with cases of covid-19 in its frontline workforce.
“So extra incentives are going towards enabling the workforce. Brands have started focusing more on core products rather than wide assortment to ensure strong availability. Hence the number of stock-keeping units in circulation have also reduced as it simplifies manufacturing and also helps ensure uninterrupted distribution," said Akshay D’Souza, chief marketing officer, Bizom.
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