FMCG firms will strategically boost ad spends as demand stabilizes

Advertising executives and FMCG industry watchers expect a greater step-up in ad-spends in the second half of this fiscal year. Ad spends may likely come back by then, as companies try to chase greater volume growth.

To be sure, packaged goods companies spend significantly on advertising their goods. However, the last two-to-three years were marked by significantly high inflation, prompting companies to undertake price hikes to counter higher input costs. Meanwhile, consumers too played safe, buying only essentials or moving to cheaper brands.

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However, the demand environment is now showing signs of stability, with companies also pointing to a more deflationary environment over the last several months.

Ankush Jain, chief financial officer, Dabur India Ltd, said that while the company is seeing some short-term positive trends in material costs, it will take a strategic approach to advertising and promotion (A&P) spends.

“We understand the need to increase brand visibility and consumer connect. But we will also prioritize efficient allocation of our A&P budget. This might involve a mix of traditional and digital marketing channels, with a data-driven approach to optimize reach and engagement," Jain said. The company, which sells toothpaste, shampoo and hair oils, spent ₹849 crore on advertising and promotions last fiscal.

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“Our intent is that overall A&P (across traditional, digital, consumer promotion) would be higher than last year, which will increase our brand visibility and engagement across all platforms. While core channels remain important, we will allocate budget judiciously and strategically to explore high-impact digital opportunities as well," Jain added.

Biscuit maker Parle Products said it's A&P spends this year could be 30% more than last year, driven by cricketing events at the beginning of the current year. The company advertised during both the ongoing T20 World Cup as well as the IPL.

Commodities, barring cocoa, are benign too, said Krishnarao Buddha, senior category head at Parle Products.

"So we are looking at being aggressive. Our participation in these key cricketing events indicates that we are looking at having a greater share of voice this year," he said.

Dheeraj Sinha, group CEO of India and South Asia for ad agency FCB expects a single-digit jump in ad spends for the FMCG sector this fiscal. However, more premium brands could see double-digit growth in ad spends, he said.

"A lot of local players are coming up as challengers in the value and premium segments of the FMCG sector, like those in the wearables segment, shifting business to themselves and some larger players are unable to live up to their promises," he said. FCB group manages clients like Amul, Mahindra, Tata Motors, Indian Oil, ITC, and ICICI Bank.

In FY24, makers of fast-moving consumer goods reported a 10.2% jump in sales, according to data from market research firm Kantar. Rural markets too reported signs of recovery after growing behind urban markets. Several FMCG firms spotted an uptick in rural demand in Q4 (January-March of 2024) and expect this trend to sustain.

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However, companies are also cautious about high food inflation. Food inflation, which accounts for nearly 40% of the overall consumer price basket, rose 8.69% year-on-year in May, compared with 8.70% in April.

Analysts said while benign commodity costs merit higher ad spends, a lot will depend on how demand improves in the coming months.

“Ad spends in any year depend upon how raw material costs are. If raw material costs are benign that does leave headroom for companies to increase ad spends as a percentage of sales. However, if the demand scenario is weak beyond a point, increasing ad spend doesn't make sense. So again, this is the function of how the demand is, based on monsoons, based on what the governments, both Union and states, do on the rural stimulus programs, this along with reducing taxation at the lower end of salary tax bracket," said Abneesh Roy, executive director and head of research committee, Nuvama Institutional Equities. "We expect 2-4% price hike across categories starting in the second quarter of the current fiscal. This pricing gives companies headroom to increase ad spends," he said.

In 2023, the FMCG sector saw a significant 36% increase in TV ad volumes compared to 2019, according to research from TAM Media Research.

Bonn Nutrients Pvt. Ltd., which makes baked goods like breads and buns, has increased its budgets three-fold over last year. The company launched a new product line in biscuits for which it signed Katrina Kaif as its brand ambassador.

"The FMCG category has been growing very rapidly in the last two years. During covid a lot of companies were dormant but now this sector is going back to advertising and not just on traditional mediums but have found alternatives in digital campaigns and print. We have built our distribution channels well in our prime markets now and will target a new cohort of consumers through CTV, OTT platforms both," said Dawinder Pal, group marketing head for the baked goods company.

Meanwhile, a large sporting events such as the T20 World Cup as well as IPL gave companies plenty of opportunity to advertise. In the ongoing ICC Men's T20 Cricket World Cup, advertisers like Amul have been strong along with deodorant perfume companies like Fogg and Vanesa group's Denver perfume. Others like Kuhl fans and pan masala surrogates Kamla Pasand and Vimal pan masala have been advertising heavily.

Ajay Gupte, the head of Wavemaker India, which works with major FMCG companies such as Luminous, Reckitt Benckiser, Perfetti, and Pernod Ricard, said high input costs remain a fundamental issue.

“While global multinational corporations are struggling, India is faring relatively well despite global challenges, leading to cautious spending. Nevertheless, the sector has seen a 6-8% growth in advertising spending overall in FY24," he said.

He also said that Q4 of FY24 (January-March) performed exceptionally well. "During the recently concluded IPL this year, there was a substantial boost in sales, particularly for air conditioners and refrigerators. The high demand during this period and the extreme heat resulted in some companies running out of stock for these products, shifting the focus to selling televisions," he said.

L’Oréal India intends to maintain its advertising spends, said a top executive at the company. "Our advertising and promotion spend are quite high overall. We invest behind our brands in a very robust way and have adequate spends which are invested in our brands. A large part of our media money today is being spent on digital but we can't consider fully moving our spends into digital, because we are in categories which are present in deep trade and the larger mass reach in terms of awareness still need a digital media and TV," said Aseem Kaushik, managing director of the company.