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Future Group, the country's largest retailer, has just concluded its Big Bazaar mega sale, with double-digit growth across categories such as food, fashion and electronics. According to its president-retail strategy, Rajan Malhotra, it achieved this by luring consumers with discounts in the region of 30 to 40 per cent in categories such as fashion and home, as well as exchange and financing offers in segments such as mobiles and electronics. Food and grocery benefited from aggressive consumer promotions (such as ‘buy one, get one free’, etc) pushing the sales graph during the five days.
Future hasn't been the only consumer-facing enterprise to see an uptick this summer. The country's largest fast-moving consumer goods (FMCG) company, Hindustan Unilever Ltd (HUL), saw 13 per cent growth in soaps and detergents and 12 per cent growth in personal products in the quarter ending March 31, driven by price-offs and consumer offers. In soaps, for instance, the price-offs by HUL were in the region of 12 to 20 per cent. In detergents, HUL chose to cut prices on select brands to the extent of 10 to 15 per cent, according to analysts.
Samsung, the Korean consumer electronics and mobile phone major, has aggressively pushed financing options this summer on select mobile, tablet and camera models resulting in a three-fold growth in equated monthly instalment-driven sales this year over last year, according to a company spokesperson. Arch rival Apple offered aggressive financing, as well as exchange offers, for its iPhone 4 and 5 models, respectively.
While consumer promotions and offers are not new, it seems to have happened at the opportune time. Nitin Mathur, consumer and retail analyst at brokerage Espirito Santo Securities, explains: "Consumer sentiment has been tepid. Companies, as well as retailers in general, have had to create the right amount of buzz to get consumers back. Second, FMCG companies have benefited from lower commodity prices, which they have been able to pass on to consumers in terms of price-offs."
In the past few months, palm fatty acid distillate (PFAD), used in making soaps, is down 25 per cent over the year-ago period. Liquid paraffin, used in the manufacture of hair oils, is down 10 per cent. While mentha oil and peppermint oil, used in making toothpaste, are down 25-30 per cent over the year-ago period.
While FMCG companies have had the room to bring down prices, thanks to falling commodity prices, most consumer goods companies have kept advertising and sales promotion (ASP) expenditure high, to maintain their momentum of launches through the summer.
The Samsung spokesperson says: "At no given point have we brought down the numbers of launches either in consumer electronics or mobile phones. March, April and May are key months for us, where we launch products across appliances, as well as flat panel TVs, besides, of course, mobile phones."
Analysts, as well as retailers, say this year is likely to be a good one for appliance makers, thanks to the heat picking up in the last fortnight. "The temperature has risen in the last 10 days, compelling consumers to pick up air conditioners and refrigerators," says Nilesh Gupta, chief executive officer of Mumbai-based consumer electronics retailer Vijay Sales.
For FMCG companies, meanwhile, competitive pressures have warranted high ASP spends. HUL's Chief Financial Officer R Sridhar says: "I don't think we intend to slacken the pace of launches or relaunches given that competition remains high." On an average, FMCG companies have seen their ASP expenditure in the region of 13 to 16 per cent of sales in the three months ended March 31, which is higher than the 12 to 13 per cent of sales maintained a few quarters ago. At a time when the macroeconomic environment remains challenging, consumer companies are not likely to bring down ASP spends anytime soon.
