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Aarati Krishnan

ONCE again, continuing the trend which began in 2002-03, Colgate-Palmolive India has chopped its advertising spend to deliver a robust increase in its post-tax profits, even as the sales environment for its products remained challenging.

For the quarter ended September 2003, the company's net sales declined by 3.4 per cent to Rs 255.5 crore; but net profits rose by 22 per cent to Rs 23.2 crore in comparison to the same period last year.

The bulk of the cost savings have come from a cutback in advertising expenditure. Adspend as a percentage of sales has fallen from 17.4 per cent in the July-September 2002 quarter to 15.3 per cent in the same quarter of 2003, delivering a significant expansion in operating margins. Since the July-September 2003 quarter was an active one for Colgate on the advertising front (the quarter saw the relaunch of three key toothpaste brands and the debut of the Aromatherapy range of products), the savings in adspend does seem to represent greater efficiency in media buying. Savings in adspend apart, a reduction in tax incidence has also kept Colgate's profit growth at robust levels.

That the decline in sales has been contained at 3.4 per cent is proof that the 17 per cent cut in selling prices that Colgate undertook for its flagship brand - Colgate Dental Cream, towards the end of March 2003, has pepped up volume growth.

This suggests that over a period of time, Colgate's strategy of pruning adspend, and passing on the savings to consumers, by reducing selling prices, may help arrest declining sales.

But this is not likely to happen anytime soon. For one, Colgate has taken a 15 per cent price cut on its gel toothpastes in July, which is likely to trim sales growth in the coming quarters.

Second, Colgate's key competitor-HLL has matched Colgate's price cuts and is renewing its onslaught in both the gel and white toothpaste segment.

New regional competitors (such as Ajanta), continue to flood the market with extremely low-priced offerings.

In the recent times, Colgate has also been testing the markets with premium products from its parent's portfolio. Over the past quarter, Colgate has unveiled the Aromatherapy range of bath products and Simply White, a tooth-whitening product.

These brands have been big grossers for Colgate's parent in the past couple of years. Given their premium pricing, building a market for these products may take some time. But if these launches click, they are likely to make a disproportionately high contribution to Colgate's profit margins.

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