Unchartered waters

The late start of the season and the cash shortage has already had its impact on fast-moving consumer goods companies, who are reporting between 10 and 50 per cent declines compared to last year’s figures. Demand for middle and low-priced goods is on the rise, at the expense of the high end of their offers. A factor contributing to that are the hotels, who are cutting costs and putting moreemphasis on their all inclusive offers, which usually relies on the least expensive foodstuffs and beverages.

Some hotels are even striking deals with nightclubs to send their customers over – this way tourists get an "ultra ultra all inclusive" package that includes room, meals and entertainment. It is only one of the tactics that hotels have started employing with the sole goal of drawing a larger crowd and boosting revenue.

Other companies have been forced to adapt and find new solutions to deal with slumping demand, which often includes changes to pricing and marketing approaches, as well as the variety of goods or services they offer. For instance, Varna firm Lagard, which makes croissants and baked goods for seaside hotels, has seen its revenue drop by about 10 to 15 per cent. To compensate for the shortfall, it has started courting restaurants as well, owner Valentin Spassov said.
Aquapolis, the amusement park in Zlatni Pyassutsi, will have to rely almost exclusively on Bulgarian tourists this year, rather than foreigners brought on packaged tours by travel companies, managing director Nina Kirova said. It plans to employ a new marketing strategy to draw domestic tourists in.

Wholesalers have also changed their approach. To compensate for the fact that they no longer accept deferred payment, they are now offering retailers bigger discounts, even if these come out of their own profit margin. Until last year, both wholesalers and retailers had much larger profit margins than similar companies in the rest of the country, but that disparity has all but disappeared.

Firms are now being more cautious with how much they spend on marketing. In years past, importers and distributors would try to outdo each other with beach parties, promotions and advertising. "Entertainment establishments and stores relied on additional revenue from the marketing initiatives of distribution firms. This year, the investment in marketing will be much smaller, which will further diminish retailers’ revenues," Avendi’s Hristov said. "Right now, distributors are on the lookout for projects that will guarantee efficiency and an instant effect."

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"Some companies might not make it through. The biggest danger is for small distribution firms and stores that have only a few years’ worth of experience, lacking the necessary resources to survive. Even big distribution firms will have to restructure their activity, merging some companies and shutting down others," according to Lyubomir Getov, who has worked for several fast-moving consumergoods firms over the years.

In the medium term, the summer season will impact the entire economy and consumption nationwide. Each year, between 200 000 and 250 000 people are directly or indirectly involved in the tourism business. A good season will secure them money for consumption for the rest of the year. A bad season would drastically impact consumption in winter, breaking the food chain.

These are just some of the initial signs and preparations for diving into the cold water. When the sailing is done and the summer is over, many businesses will be drastically changed. For some, the stakes of this summer season are no less than survival.

Kapital weekly, Issue 23