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FMCGs shore up trade margins, consumer promotions ahead of festive season

Margins not impacted significantly even as firms offer everything from price-offs and grammage increase to buy-one-get-one free schemes, combo packs

FMCGs shore up trade margins, consumer promotions ahead of festive season
Firms are also pushing bigger packs and offering more incentives if retailers display these products prominently in their stores.
Viveat Susan Pinto Mumbai
3 min read Last Updated : Oct 19 2020 | 1:08 AM IST
A trip to the local supermarket is increasingly becoming a shopper's delight. Promotional activity across brands, notably in home and personal care, has gone up as firms strive to improve sales. This includes everything from price-offs and grammage increase to buy-one-get-one free schemes, combo packs et al.

At the same time, companies are also offering higher trade margins to retailers to push their products as churn levels increase. Data from market research agency Nielsen shows that retailers are prioritising their assortments to focus on mainly high-selling items.

Average number of categories stocked in August-September, says Nielsen, was down three per cent in traditional and modern trade versus the pre-Covid period of January-February as retailers attempted to reduce clutter levels on store shelves.

Categories that were impacted due to the destocking, say sector experts, was home and personal care, prompting companies to step up both consumer promotions as well as trade-level incentives.

Industry sources say that trade margins by companies have increased by around 3-5 per cent to retailers in categories such as soaps, detergents, shampoos, hair oils and conditioners. Firms are also pushing bigger packs and offering more incentives if retailers display these products prominently in their stores.

"Lubrication of trade channels becomes important when demand begins to fall," says Mohit Malhotra, chief executive officer, Dabur India. "There was a rebound in sales in June-July led by pent-up demand. However, this began to taper in August-September, compelling companies to look at trade as well as consumer-level promotions. I see this continuing for some time," he says.

Sumit Malhotra, director, Bajaj Consumer Care, says that with the festive season round the corner the propensity to spend will increase, some of which will be directed at stocking up on groceries.

"The idea of launching consumer promotions right now is also strategic," he says. "Companies will want to take advantage of the festive season mood by luring consumers with more offers and discounts on larger packs. The pandemic has also forced people to make fewer trips to supermarkets and groceries. An increase in promotional activity is aimed at pushing them to buy more whenever they shop," he says. 

Grocery retailer DMart has corroborated this trend, indicating that footfalls in August and September into its stores were lower than pre-Covid levels, though basket values were higher.

Nielsen has said that consumers remain mostly value seekers as they prioritise household expenditure amid salary cuts. Mass and popular price segments of FMCG products, for instance, showed an uptick in August, Nielsen said, versus pre-Covid levels.

In contrast, preference for premium and super-premium price points were coming down, it noted. Private label contribution in modern trade too was inching up in August, standing at 5.1 per cent value share, versus 3.5 per cent visible before the pandemic.

Abneesh Roy, executive vice president, research (institutional equities), Edelweiss, says that consumers are downtrading, forcing companies to give more value to them in the form of promotions and discounts. “Food got the tailwind from the lockdown and pandemic. So the promotional intensity is lower there. On the home and personal care front, the endeavour is to try and get consumers to loosen their purse strings a bit more, which is why the promotional intensity has increased,” he said.

Margins, he says, will not be impacted, since companies are tweaking ad spends to accommodate higher promotional activity.

Topics :FMCGsconsumer spendingSupermarket

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