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Spending dip unnerves consumer cos

Wednesday, 5 February 2014 - 10:02am IST | Place: Mumbai | Agency: DNA
Inflation-hit consumers tight-fisted even during festive quarter.

Consumers continue to remain tight-fisted when it comes to spending if dwindling sales volumes across companies is an indication.

Several companies, like Marico, Emami, Jubiliant FoodWorks to name a few, have witnessed a decline in volume growth in certain segments, as compared to the previous quarter.

This comes at a time when companies were expecting a recovery in demand. Moreover, this festive period of October-November, traditionally a better period for consumer companies, was expected to push up growth but on the contrary demand has tapered down even further.

What’s worse is that an immediate recovery has been completely ruled out. Consumer companies now believe that pick up in demand is expected only after 2 or 3 quarters. “There has been a significant slowdown in terms of market growth, both in terms of volume and value. The sense we have is that market growth might be slow for another two-three quarters,’’ said R Sridhar, chief financial officer of HUL. Till now, demand from the rural markets was helping in holding up the volume growth. However, despite the fact that the monsoons were better than expected and rural growth was expected to pick up, growth in the hinterland has been slower than expected. N Krishna Mohan, CEO (sales, supply chain and human capital), Emami explains that despite a good monsoon, growth in rural areas was negated on account of high inflationary trend. In order to woo consumers, its likely that companies could dole out promotional offers. However, unlike the previous year, the intensity of promotions and discounts are not expected to be that high this time.

“Even though there would be an increase in promotions, the main focus will be more on long term growth by increasing distribution and penetration,” said Mohan.

Last year, we saw discounts ranging anywhere between 5% and 25% across several categories like personal care, toothpaste, soaps etc. Abneesh Roy of Edelweiss Securities also explains that this time around promotional spends will not be as high as the previous quarters. “Promotions is a costly way of reaching out to consumers and therefore even though we will see an uptick, it wont be very high as this affects the bottomline of the companies.”

Moreover, unlike last year, the rupee continues to be on a weak footing making raw material costlier and as a result, companies would be even more wary of increasing promotions.




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