Tuesday, December 14, 2010

FMCG Industry: Rising ad spend, competition to hit margins

Liquid soap PalmoliveImage via Wikipedia
OVER the past few quarters, larger FMCG players have increased their advertising and promotional spends and reduced price per unit quantity in a bid to stay ahead of competition. This has, however, impacted their profitability since the topline growth has lagged behind the increase in operating costs. 

The scenario is not expected to change in the immediate few quarters given the competitive pressure. This means companies may show volume growth going ahead but proportionate profit growth will most likely be missing. As a result, most FMCG players would take a hit in their margins. However, ITC, which enjoys leadership in tobacco segment, and niche players such as Zydus Wellness and Colgate-Palmolive are expected to report sustained growth in earnings. 

To leverage their existing brands further, some FMCG companies have opted to introduce variation of these brands. The objective behind such a strategy is to retain existing market share while luring new customers. For instance, Nestle enjoys a market leadership in the noodles segment through its brand Maggi. It commands around 80% of the noodles market. Given the lucrative nature of the niche segment, other established players including GlaxoSmithkline Consumer Healthcare and HUL are also offering products in this category. To ward off competition, Nestle has extended its Maggi brand to Maggi Soupy Noodles. 

Enhanced by Zemanta

No comments: