The Hindu Business Line : Biting the bullet

TRYING to match prices with the smaller players, large FMCG companies have been on a price-cutting spree. Of late, Hindustan Lever, Procter & Gamble and Colgate have announced `new' prices for their various brands to beat sluggish sales, combined with the introduction of lower-sized packs to get volumes.

Colgate Palmolive India dropped prices by 17 per cent this June. The company slashed prices of its Colgate Dental Cream (CDC), Colgate Herbal and Gel brands and simultaneously also slashed ad spends by 30 per cent for the quarter ended June 2003. This month, P&G announced that its superior quality detergents, Tide and Ariel, would now be available at Re 1 and Rs 2 respectively per sachet. HLL is also expected to follow suit with its Surf sachets with the obvious purpose of gaining volumes at the lower end of the market.

Calling it a value correction exercise, Ashok Chhabra, Executive Director, P&G, says, "This is an exercise in value correction where you basically pass on the efficiencies of manufacturing, logistics and distribution to the consumer. Value correction is a function of being competitive in the marketplace." In fact, P&G undertook its `value correction' exercise last year itself and this year it has initiated the same for its Tide and Ariel sachets to make mass consumers experience the `superior technology' offered by its brands.

HLL managers describe the exercise as that of dropping price barriers to induce growth for their brands rather than trying to beat the smaller players with their pricing. Claims Sanjay Behl, Marketing Manager, HLL, "More than benchmarking competition, dropping prices is all about triggering growth and this has always been an integral part of our strategy." Straddling almost every price segment with its SKUs, HLL has also been trying to upgrade its consumers, even at the cost of cannibalising its own brands. For instance, early this year it dropped prices for Surf Excel by nearly 15 per cent just to have its users from the lower-priced brands migrate to its superior technology-driven brand.

Adds Behl, "We are lowering the price barriers for our consumers so that they can have access to our high quality products." Likewise, P&G also hopes that its premium brands would get a chance to be experienced more often by the masses that use less expensive powders. Says Shantanu Khosla, P&G's Country Manager, "Most families that use low-priced detergents in India use Ariel and Tide sachets for expensive clothes. The price reduction on sachets should encourage more consumers to use them for all clothes and definitely more often."

Besides, freebies and promotions have finally been replaced by direct price reductions to lure consumers. Observes Sujoy Mishra, an analyst at Kotak Securities, "Promotions have shifted to the trade while freebies have been replaced by price cuts." Considering almost every FMCG brand was doling out a freebie, it was time for FMCG players to differentiate themselves. Observes A. Sundarajan, Managing Director of market research firm, Market Search, "The round of freebies has already been played out by the FMCG companies. They are now coming back to their core brands at a lower price."

Research Agency ORG-Marg AC Nielsen data reveals the current scenario. For the month of July this year, sales of FMCG products continued to decline.

With the exception of skincare and shampoos, sales in other product segments such as packaged tea, toilet soaps, toothpastes, detergent cakes, washing powders and toothpowders have declined in absolute terms. For instance, sales of toilet soaps and toothpastes have fallen by 12 per cent while tea sales have slumped 9.1 per cent, as per the data.

In spite of the slowdown in rural demand, FMCG companies continue to focus on the rural markets in the hope of salvaging their sales turnover. Majors such as Godrej and HLL have deliberately introduced small pack sizes. Lifebuoy, HLL's largest selling soap brand, recently introduced a Rs 2 SKU of 18 gm targeted at the rural market while Godrej has also for the first time launched Rs 4 and Rs 5 SKUs at 50 gm for its three power brands - Cinthol, Fair Glow and Godrej No.1, in the Bimaru States.

Claims H. K. Press, Executive Director & President, Godrej Consumer Products Ltd, "We have decided to target the States with low per capita incomes through our small unit packs. At the moment we are learning and trying to understand these markets. Once we feel these brands have been accepted, we will make it a permanent feature in Bimaru States."

Meanwhile, retail sales for the biggest FMCG major, HLL, continue to skid. Research data based on ORG-Marg state that HLL has witnessed a 10.1 per cent decline in retail sales for the three-month period ending July 2003 when compared to the same period a year ago. The company's sales of soaps and scourers declined eight per cent against 4.5 per cent in June 2003.

While expectations from a good monsoon are running high, recovery of the industry will take much longer. Expecting no dramatic change for the industry in the coming months, analysts forecast tough times ahead. "The overall pace of growth will still be slow. Even in the rural markets it will be only the drought-affected areas which are likely to see some demand due to low penetration," adds Mishra

But on the whole, the price cuts undertaken by the big players to take on competition and gain volumes have yet to yield results. Colgate, for instance, is still not in a position to translate its efforts into any additional volumes for its brands in spite of the 17 per cent reductions across almost all its brands. "It is still too early to talk about gaining volumes as a result of these price cuts," says the Colgate spokesperson.

It may be matter of time before the FMCG biggies actually begin to reap results. Observes Nikhil Vora, Senior Vice-President (Research) at ASK Raymond James, "We believe that only innovative categories will display `V'-shaped growth while most others are likely to exhibit a `U'-shaped growth. Competitive pressures for lead players are starting to subside leading to market share gains. We attribute this to the significant price reduction undertaken by most listed FMCG players." It looks like price will be the plank which will prevail for a while in the market.

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