FMCG biggies such as Cadbury, HUL, ITC, P&G offer big discounts to push premium products on slowing demand

 NEW DELHI/MUMBAI: FMCG companies such as Cadbury, Hindustan Unilever, ITC, Procter & Gamble and Heinz have launched discounts ranging anywhere between 10% and 70% on high-value items in the past two weeks as they try to push premium products amid slowing demand.
Leading the pack is
Cadbury India, which now sells a Toblerone 400-gm pack for 250, against 430 earlier, in a promotional offer that the company says will run for two weeks at modern stores.

"Brands often undertake strategic programmes to promote products to encourage trials and build a stronger association with consumers," a
spokesperson at Cadbury India, which has also slashed 100 on 200-gm bars of the triangular Swiss chocolate, says.

US food
major Heinz is offering 20 off on its Complan milk drink, perhaps its highest price-off in recent times, while Hindustan UnileverBSE -0.50 % is running promotions and discounts on Pears soap, Dove and Sunsilk shampoo (see graphic).

It's after several quarters (apart from festive seasons) that big discounts are coming to packaged consumer products such as chocolates, soaps, detergents and food with such intensity. While most FMCG players increased prices in 2011, there were hardly any price changes last year.

Varun Berry, COO of biscuits maker Britannia IndustriesBSE 0.52 %, says growth has slowed down across multiple categories in the consumer goods space. "Promotions and discounts have accelerated because of a combination of this slowdown and aggressive competitors coming in," he says.

Falling input costs helping too

official of a leading supermarket says the competition has increased particularly at the top end of the market where several brands have entered since last year. The sudden rush of offers follows a sharp slowdown in growth of discretionary spending-that is, spending on products and services that are not necessary or mandatory-among Indian consumers. Over the first nine months of 2012-13, discretionary spending growth has slowed to 17% year-on-year from 31% in the previous year, according to a recent Credit Suisse report.

"From a consumer perspective, it's like a viral where discounting has shifted from aviation to auto to soaps and other consumer products now," Anand Mour, FMCG analyst with
ICICI Securities Ltd, says. "Companies are offering discounts and price-offs mainly to mop up more volume growth, especially in the soaps and detergent category that have seen sharp deceleration in volume growth," he adds.

JPMorgan report dated March 15 said promotional intensity is increasing across soaps, shampoos and laundry segments. "P&G is offering 15% extra for its Rs 3 shampoo sachets. HULBSE -0.50 % has been offering price-offs on its premium detergent brand Surf Excel Matic," it said.

Falling input costs are helping too. Prices of crude oil and palm oil-key ingredients for soaps and detergents-have declined 7% and 3%, respectively, month-on-month, helping P&G, HUL and
ITCBSE -1.04 % offer promotional discounts on some of their brands.

Analysts at
Edelweiss Securities suggest that moderating growth has clouded next two quarters' volume growth at the country's largest consumer products maker, Hindustan Unilever, and hence the promotions. "Promotional pricing (no cut in MRP) has been initiated across soap brands in select SKUs (barring Hamam) in the 12-20% range owing to cooling palm oil prices," Abneesh Roy of Edelwiess wrote in a report. "This will limit price growth," he added.

Ashutosh Chakradeo, head of buying and merchandising at HyperCITY Retail promoted by retail chain
Shoppers StopBSE 0.10 %, says marketers have also started aping big retailers' strategy of bundling products to offer discounts.

"As retailers, we always bundled products or offer discounts from our side while companies resorted to lowering of MRP. But now companies have started to club products together or give price-offs themselves with retailers adding on extra price-benefits at the store level," Chakradeo said.