Consumer firms eye govt’s tax largesse with aggressive ad spends to boost sales

Companies such as Parle Products said they will step up distribution activities in urban markets as well as marketing spends in the upcoming quarter. Similarly, restaurant chain Wow! Momo will activate more digital campaigns and run promotions in high footfalls areas, the company’s marketing head said.

Godrej Enterprises, maker of home appliances, is looking to boost sales through attractive EMI (equated monthly installment) schemes.

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Earlier this month, finance minister Nirmala Sitharaman announced relief on personal income taxes for those with an annual income up to ₹12 lakh. The move is set to put additional money in the hands of consumers, potentially boosting consumption. Last week, the Reserve Bank of India (RBI) also slashed its benchmark repo rate for the first time in five years, giving some breather to retail borrowers.

This is likely to benefit discretionary categories that are hoping the shrug off a slump in urban consumption that has hurt demand for goods such as apparel, mass-market consumer products as well as fast food.

“We are particularly bullish about the September quarter; consumer spends could be the best we have seen in the last four years as the benefits of the newly announced budget kick in,” said Murali Krishnan, co-founder and chief marketing officer of quick-service restaurant chain Wow! Momo Foods that operates 675 outlets across India. “We are looking at driving up our visibility in malls as retail footfall may come back. We will see a lot of small campaigns and marketing properties being created over the next six months, as brands try to lure consumers back,” he said. Companies will also build up their loyalty program amid an upswing in urban consumption, he added.

The current quarter will also see the commencement of the annual cricket extravaganza under the Indian Premier League. Brands typically allocate some budget towards the matches. “We could see the industry increasing spends by at least 7-8% this fiscal from the 3-4% growth over the last few years in anticipation of greater spends,” he said.

Fast-moving consumer goods (FMCG) companies are also looking to expand capacity in urban areas and increase advertising budgets over the next two quarters. This is in anticipation of a rebound in sales volumes, which have recently slowed in urban markets.

“We are gearing up in way of increasing capacity in markets; ad spends will go up. Revival will come in the first quarter of next fiscal, especially in urban markets. Companies will like to secure whatever incremental volume growth they can get in urban markets because volumes have been a challenge for the industry. We also expect heightened competition and promotion intensity going forward,” said Mayank Shah, vice-president of Parle Products. The company sells biscuits and wafers.

Demand for packaged consumer goods in the December quarter spiked 10.6% year-on-year in value terms, market researcher NielsenIQ India said in its FMCG quarterly snapshot last week.  Demand for consumer goods in urban markets, however, remained slower than that in rural areas, although volume growth improved to 5% in the December quarter from 2.6% in the preceding three months.

Shah said the industry could see a 10-15% surge in advertising spends in the new fiscal year starting April.

Meanwhile, makers of home appliances are planning to make EMIs more attractive for consumers.

“The income tax reform, which raises the minimum taxable slab to ₹12 lakh, coupled with RBI rate cuts, is expected to improve disposable incomes for our consumers, reduce the cost of financing, leading to a boost in consumer spending. To capitalize on this trend, we plan to focus on offering attractive consumer EMI options. At an industry level, around 40% of sales are now through EMI, and we aim to build on this momentum, as we believe easy financing options will be a key driver of sales in the coming quarters,” said Kamal Nandi, business head, appliances business, Godrej Enterprises Group.

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Additionally, the company is running promotional offers across categories.

Middle-class consumers are the target users for these companies in the mid-mass segment, said analysts at Motilal Oswal.

“The revenue tax savings of ₹1,000 billion ( ₹1 trillion) will boost disposable incomes, driving higher spending across the essentials (FMCG, groceries, personal care) and discretionary (quick-service restaurants, jewellery, fashion, premium products) categories,” they said.

Based on the income tax filing data for year 2023-24, 85% of taxpayers fall within the average income range of ₹12 lakh or below. Of this, 30% earn between ₹7 lakh and ₹12 lakh, and are actively paying taxes. With the proposed tax slab revision, these individuals will directly benefit and could drive higher consumption (mass to mid-premium segment), contributing to economic growth, they added.