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Covid-19 impact: Mixed bag for discounts as companies strike balance between sales and costs

While hotels offered up to 50 percent off on room rates to woo back customers, automobile and consumer durables companies went slower on upfront discounts. But it is still not clear when customer demand will return to pre-Covid levels

November 27, 2020 / 10:37 AM IST

The 2020 festive sale season was unlike any before. The coronavirus outbreak and allied lockdown led to a loss of business for players across the automobile, white goods and hospitality sectors. To make up for the lost revenue, discounts were used as the main tool to woo back customers but tough financial conditions also posed a risk of balance sheet erosion.

Hotels went all out to offer as discounts as high as a 50 percent on room bookings in a bid to lure customers. Here, places such as Goa and Shimla are said to be at the top when it comes to discounting, especially since customers’ disposable income is on the decline with pay cuts and job losses.

Nilesh Shah, President of Travel and Tourism Association of Goa, said that hotels in all segments are offering discounts in the 20-50 percent range.

There was an expectation that revenge buying and revenge tourism would help drive sales for customer-facing companies. However, that has not been true for all segments.

The automobile sector, for instance, has seen a revival in sales during the festive season. Hence these players were not forced to offer discounts. However, in the white goods space, discounts were the only way to nudge customers to buy even as initial sales records from Onam 2020 remained poor.

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In fact, industry insiders in the consumer durables sector said that companies are burning money in a bid to attract customers during festive sales.

Automobile sector

Discounts during the festive period had come down marginally as consumer sentiments were upbeat. Maruti Suzuki, for instance, clocked sales of 96,700 in retail sales during Navratri, which was a 27 percent increase compared to last year’s Navratri period. During the three days of Diwali the car-market leader sold around 37,000 units, which was higher than last year’s Diwali.

But anticipating the surge in demand well in advance, the car market leader brought down the average discount during the September quarter itself. Discounts were down 30 percent at Rs 17,300 compared to Rs 25000 per car offered in the June quarter.

“Discounts had to come down as there was a sharp increase in retail demand. Discounts are directly related to demand, which is affected by factors like competition. So, discounts go up and they go down too. Because this year has been so unusual there was pent-up demand that got released just in time, before the start of the festive period”, said a senior executive at Maruti Suzuki India.

There were first-time buyers for vehicles as Covid-19 brought an understanding that driving one’s own car/bike would be safer than public transport. There were offers to attract these customers.

“There was nothing out of the ordinary during these festive days. There were several first-time buyers this year and we had offers for them. The result was a very robust pick-up in bookings and we were prepared with our stocking with dealerships", said a senior executive from Hyundai Motor India.

For Hyundai this was one of the best festive seasons ever. On the back of an almost completely refreshed product line-up (new i20, new Creta, Grand i10 Nios, Aura) the Korean car brand saw a robust jump in demand during the festive days. During Navratri alone there was a 28 percent jump in volume. Except for slow-moving models like Santro, Grand i10 and Elantra there were no discounts on other models such as the Creta and Venue.

However, Tata Motors, India’s third-largest passenger vehicle (PV) manufacturer, offered much lower discounts than its peers. The SUV Nexon was sold for a benefit of just Rs 15,000 on the diesel variant as against Rs 45,000 earlier. Tiago and Tigor were sold with benefits of Rs 25,000 and Rs 30,000, respectively, lower than Rs 40,000 and Rs 60,000 earlier.

Harrier, the mid-size SUV, carried a total customer benefit of Rs 65,000 as against more than Rs 1 lakh at the start of the year. Sources say Tata Motors’ retail sales during the Navratri period almost doubled.

For the auto sector in particular, it could be said that revenge buying and safety amidst Covid-19 forced customers to buy new vehicles even as discounts were lower.

Consumer durables

The consumer durables industry was hit hard by the dual impact of rising raw material costs and delays in components from markets such as China.

Added to it were government regulations increasing customs duty back to 5 percent for open-cell panels of LED screens and an import ban on completely built units of air-conditioners.

Every year, sales worth Rs 4,500 crore are clocked between August and November. This accounts for almost 50 percent of the annual sales for consumer durables firms. This year, e-commerce sales picked up pace and represented close to 30 percent of total industry sales.

This festive season, initial estimates suggest that sales worth Rs 3,800 crore was done in the festive season.

The white goods market in India, currently worth about Rs 60,000 crore, is growing around 15 percent every year. However, 2020 has been different as Covid-19 led to a 65 percent decline in revenue in April, May and the first half of June. Appliance makers were hoping to make up for the lost sales during Diwali.

Even as sales resumed ahead of Onam in August, offline sales continue to be slower. Moneycontrol had reported on how Onam sales were not as expected due to sudden lockdowns in parts of Kerala.

In stark contrast to previous years, 2020 saw muted discounts from consumer durables majors. It was primarily zero-interest EMIs, cashbacks and extended warranties that were used to attract customers.

Avneet Singh Marwah, CEO of Super Plastronics (SPPL), the brand licensee of Thomson and Kodak TVs in India, said that considering the rise in panel prices for televisions, it was just not feasible to offer discounts.

“Television prices have to be raised on a month-on-month basis. I am aware that two large appliance majors had offered discounts even as this was not sustainable. Considering the tough financial position that the industry is facing, it wasn’t possible to give huge festive discounts,” he added.

Hotels

Following the easing of the lockdown and relaxation on restrictions on allowing guests to stay at hotels, several hospitality companies cashed in on the opportunity. Keen to make the most of it, travellers chose to go to drivable destinations. This led to a near-full house at hotels in destinations such as Goa, Jaipur, Kerala, Ooty and Shimla, especially in resort properties.

Hoteliers rolled out weekend packages offering discounts on not just room rates but on food and beverages (F&B), too. Room rates were 25-30 percent lower on weekends and up to 50 percent lower on weekdays compared to the same period last year. Besides discounts on F&B, hotels offered complimentary pick-ups, spa treatment, free laundry and free Wi-Fi.

Some came up with innovative ways to get customers back. In Uttarakhand’s Nainital, for instance, a monitoring committee of the Nainital High Court suggested that guests could be given a flat discount if they present a Covid-19 negative report.

However, to what extent this will be effective still remains a question. Nainital-based hotelier Praveen Sharma told News18  that despite offering a 50 percent discount, his hotel chain is yet to see any excitement.

Overall, hotel occupancies have plunged by close to 60 percent as corporate travel was halted and leisure travel reduced owing to safety reasons. An added cause of concern is the sudden lockdown and night curfews in some regions that is forcing travellers to cancel/postpone their trips.

report by hotel transaction advisory firm Noesis Capital Advisors and Ngage Hospitality said that hotel occupancies, which averaged about 65 percent in 2019, dropped to 9 percent in the first half of 2020-21.

Similarly, data from HVS Anarock showed that occupancy in popular destinations such as Jaipur dropped by 39 percent to average at 27 percent in September. In Goa, hotel occupancy fell by 35 percent to 26 percent average in September 2020.
M Saraswathy
Swaraj Baggonkar
first published: Nov 27, 2020 10:37 am

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