Special offer on the local FMCG market this year: 7 percent off

From shampoo to yogurt, the local FMCG market has staggered under the weight of promotions this year, with companies sacrificing profitability on the altar of sales volumes and market share. Shrinking purchasing power doesn’t leave much room for recovery hopes in 2011 but nevertheless, while waiting for better days, companies are continuing their aggressive marketing campaigns and announcing portfolio expansions.

Simona Bazavan

Economic uncertainty, shrinking salaries, a five percent VAT hike, inflation and faint hopes for economic recovery any time soon have all hit consumption for another consecutive year. While in 2009 the FMCG market reached roughly EUR 22 billion, in the first eight months of the year it fell by about 7 percent according to retail auditor MEMRB. The drinks industry saw sales sink by as much as 10.4 percent in value, food products shrank by 7.7 percent, and non-food by 7.8 percent, according to the same source. Cigarettes were the only industry with a positive growth rate but the modest 1.6 percent increase was mainly generated by price hikes.

“The new economic conditions have made local consumers return to economical products and promotions and become more selective by purchasing products only when needed and only in the necessary amounts. This trend began last year but continues,” Manuela Banu, general manager of Orkla Foods Romania, told Business Review.

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Anything but hiking prices was the recipe for success this year, FMCG companies say. “We are fully aware that in such an economic context one cannot add pressure on the final consumer by increasing prices,” Ramona Brad, external relations associate director at Procter & Gamble Romania (P&G), told Business Review. So local players pinned all their hopes on promotions. Brad adds that at P&G Romania the solution was to offer consumers price-differentiated items in the same product range, a strategy that has been implemented since before the crisis both globally and locally.

“Obviously purchasing power has decreased and consumers have focused on less expensive products, but by finding options among our product portfolio they have remained our consumers,” she says, adding that innovation is also crucial for a FMCG company, both when it comes to products but also to costs. This year P&G launched two new products on the local market, Ariel Active Gel Capsules and the Olay cosmetics line, with positive results so far, according to Brad, and others are to follow.

Promotions, cost optimization and aggressive marketing were also the strategy at Danone Romania. Bogdan Ioachim, the company’s communication director, says the firm also invested in consumer education projects related to healthy eating. This year the company managed to boost yogurt sales by about 10 percent but Ioachim says that Romania continues to have the lowest yearly per capita consumption average in the region, at only 5.7 kg, and annual growth rates remain modest.

Elsewhere, promotions were also the name of the game for Orkla Foods Romania. “We focused on the economical segment but brands from the medium segment such as Linco and Ardealul also performed well,” said Banu of the company’s strategy for 2010. Being a local business, Orkla Foods Romania also has the advantage of adapting better to market conditions, she added. The company says it plans to expand its product portfolio by launching new products next year.

As for what 2011 may bring, FMCG companies remain cautious in their estimations, forecasting gradual recoveries at best.

Some invest in business expansion, others consider scaling back

In spite of the hard economic times, 2010 did not go without investment projects in the FMCG industry.

P&G officially opened a shampoo and conditioner plant in Urlati, Prahova county, in September. The USD 100 million plant is a greenfield investment which the company says is part of its strategy of sustainable development in Romania. About 90 percent of the production from Urlati is exported to regional markets such as Turkey, Russia, Ukraine and the Baltic countries.

The company has also recently celebrated the 15th anniversary of its detergent and bleach plant in Timisoara. Over USD 50 million has been invested so far in the factory, which employs 300 people and exports 40 percent of the over 30 million liters of Fairy dishwashing detergent, 30 million liters of Ace bleaching detergent and 100,000 tons of Ariel, Bonux and Tide detergents it produces each year. 

Other players are scaling back their operations. Ursus Breweries announced two weeks ago that it was closing its factory in Cluj-Napoca, due to poor results for the April-September period. The company currently operates four production units and says that their output is more than the local market can absorb.

“The Romanian beer market continues to go down, dropping by more than a quarter in the past year and a half,” said representatives of Ursus Breweries, adding that the forecast for the medium and long term was not optimistic. Between April and September the company’s sales volume went down by 11 percent against the same period of the previous year.