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Though fast-moving consumer goods (FMCG) companies, a safe haven through most of the slowdown, have felt consumption blues of late, they have continued to increase their spending on advertisement and sales promotion.
While the average sales growth of these companies showed a decline of almost nine per cent in 2014-15, their spending on these heads rose almost 10 per cent.
At Rs 3,944 crore in FY15, Hindustan Unilever’s (HUL’s) ad spends jumped 7.3 per cent from Rs 3,675 crore in FY14. That of Kolkata-based Emami rose 41 per cent to Rs 392 crore; analysts attribute it to the slew of new categories it entered.
Bucking the trend was ITC, one of the biggest in Indian FMCG.
The Kolkata-based conglomerate spent Rs 755 crore on advertising in 2014-15, against Rs 796 crore the previous year, a fall of 5.1 per cent in an otherwise happy splashing on ads and promotions by the sector.
However, the decade-long bull run for consumer goods majors like HUL, ITC, Asian Paints, Nestle and Dabur seems to be coming to an end. Sales growth of soaps, shampoos, deodorants, detergents, noodles, biscuits and juices hit a 10-year low of nine per cent in 2014-15. The sector earlier reported a single-digit growth rate in 2004-05, first year of the Congress-led United Progressive Alliance government.
An executive at a top FMCG company said on an average, those in the segment allocated 14-15 per cent of revenue to advertising every year, most of which is targeted at the rural consumer.
“For an FMCG brand, advertisement and promotion is absolutely necessary to capture the mind of rural consumers and create recall value. According to various estimates, rural areas now account for half the industry’s demand in volume terms, up a third from a decade ago. This has made rural India key to the fortunes of consumer companies.”
In the past, high ad spending has taken a toll on the margins of many companies, though analysts say this is peculiar to the way FMCG companies operate in India.
“Advertisement and promotion depends on both marketing and innovation and strategy of the particular companies. With urban demand showing recovery, companies are eager to cash on this,” said Abneesh Roy, associate director at Edelweiss Capital.
He added companies had readied an array of launches and some products had undergone re-branding, too. “You have to supplement these exercises by a number of marketing activities and promotional events. It always had an impact on margins but this is one of the important ways to bring the eluding volume growth back.”
ITC, HUL and Emami have launched many new products this year and these will require robust spending on promotion in the coming quarters.
