The consumer-buying spree

Large FMCG companies are making expensive acquisitions to buck the slowdown. Will the strategy pay off?

Illustration Kishore Das

Very often, carefully named concepts fail to live up to their own once-suitable monikers down the years. A case in point would be the domestic fast-moving consumer goods (FMCG) sector, which has seen an unprecedented slowdown in recent years, right down to a big dip in demand. Of course, this is not something that Bajaj Corp MD Sumit Malhotra has witnessed for the first time in his 30-year career. “We have seen several periods of low demand offtake in the past as well, but never for more than two quarters at a stretch. This time around, it has lasted nine quarters,” he says. Although 2015 has not been an easy year for Indian industry in general, what with the disappointing rainfall and slow growth, FMCG companies seem to be more than a little worse for wear. And their attempts to firefight this situation are clear — a majority are slashing prices or increasing their advertising spend, and some have even taken the risky decision of expanding through acquisitions. Given that sales are growing at their slowest pace in 13 quarters, Malhotra says he is only too nervous thinking about how long this period will last. Given that he handles the Rs.857-crore Bajaj Corp, a key player in the light hair oil business, Malhotra says he is hoping that “consumers start spending, which is the only thing that will make a difference.” He has a point: for the third quarter of FY16, the hair oil industry has grown by just 0.7% compared with a 6% growth in 2014-15. As companies head to the market to make their picks for inorganic growth, a lot of serious money is being spent on brand acquisitions, which are mostly in categories new to acquirers. The hope, of course, continues to be that one of these buys plays out, and in a big way. But are the companies biting off more than they can chew?