FMCG Firms Extend Ad Blitz To Revive Lagging Mass Consumption
Despite spending 8-17% of their sales on ads and promotions in Q3, it didn't improve volume growth materially.
Consumer goods makers are cranking up their advertising and promotion budgets, hoping to coax the middle-class households to spend more.
In the third quarter of fiscal 2024, the makers of soaps-to-staples spent a whopping 12-36% more on ads, according to company disclosures. Emami Ltd. was an exception though, reporting a single-digit growth in ad spends.
This translates to 8-17% of their sales being spent on ads and promotions in a quarter that was marked with festive season and sporting extravaganzas. Still, these three months failed to bring cheer as the volume growth of companies didn't improve materially. The industry saw low single-digit volume growth, particularly as mass consumption remains elusive.
"The industry is seeing polarity of booming premiumisation and tepidness in the mainstream," said Suresh Narayanan, chairman and managing director of Nestle India Ltd.
Decoding the on-ground consumption scenario, he said, consumers are more willing to splurge on high-end cars or luxury items, but the same doesn't necessarily hold for daily household goods. The owner of Maggi noodles and Kitkat chocolates is seeing an uptick in the premium products as a result of the "wealth effect".
However, the middle-income group is showing signs of stress as they continue to face the vagaries of a combination of job losses and inflation. Despite the urban nature of the portfolio, Nestle India's volumes are estimated to have grown 3-4% in the quarter ended December.
"Everyone (companies) is chasing volumes today," said Narayanan.
The companies are focusing on improving visibility of new launches, ranging from specialised toothpastes to shampoos and the most-hyped Korean noodles.
These firms are also spending on aspirational packaging, trade promotions and increasing prominence on new-age channels like quick commerce to stay relevant with the young shoppers. The strategy relies on marketing to get the word out.
That's one reason why the fast-moving consumer goods industry's advertising expense is expected to further pick up in the coming quarters.
"At the peak of inflation, of course, we had to curtail back (ad spends)," Ritesh Tiwari, chief financial officer at Hindustan Unilever Ltd., told analysts in a post-earnings briefing. "But our absolute A&P investments were up almost Rs 400 crore higher in Q3 than last year."
The Surf Excel-maker dialed up investments mostly to lure consumers to premium products—and prices. In categories such as skin cleansing and laundry, the country's largest consumer goods maker raised grammage, passing on the benefits of cooling inflation, or expanded trade promotions. As a result of which, HUL's homecare and beauty and personal care segments saw volume recovery.
However, the food business saw single-digit volume decline on account of the price hikes taken to offset the impact of higher commodity costs, dragging the overall underlying volume, which grew 2% year-on-year.
Nestle India, too, will accelerate its advertising spends on new product launches to woo consumers and expand market footprint. Nearly 40% of its aggregate media expenses is now being spent on digital media.
Companies are also channeling more investment behind brands to recover lost market share as consumers switched to regional brands, which are typically lower-priced. "The competitive intensity is increasing. So, you will see investments further getting dialed up," Tiwari said. HUL, the biggest spender on ads, expects its operating margin to remain subdued in the near term as it will prioritise ploughing more money into advertising.
Dabur India Ltd. stepped up A&P investments by 36% over last year in the third quarter, which translated to higher offtakes in its core market—the Hindi belt comprising Uttar Pradesh, Madhya Pradesh, Bihar—Rajasthan and Maharashtra, according to its CEO Mohit Malhotra. At 8%, the firm's A&P spends as a percentage of sales was the highest since Q3 FY22.
The ICC Men's Cricket World Cup, too, drove higher advertising spend in Q3 and the upcoming high profile sporting events may fuel sustained advertising momentum in Q4 as well.
According to Pradeep Jain, chief financial officer at Diageo India, the Indian Premier League is likely to be advanced in view of the Lok Sabha elections. "So, WPL (Women's Premier League) and IPL will happen in February and a good part of it might well happen in March also. Therefore, we would want to remain as salient as possible with the consumers during the cricket season when the entire country gets together."
January-March will remain a high A&P quarter for Diageo also because the company wants to market its newly launched tequila brand, Don Julio. The company will be injecting “some amount" of A&P into its lesser-priced popular brands to resurrect the growth momentum, Jain said.
Sales in Diageo-controlled United Spirits' premium segment—which includes brands such as Johnnie Walker and Signature, and accounts for roughly 80% of its net sales—rose 4.6% in the October-December quarter. Meanwhile, inflation and increased competition curbed sales of the lesser-priced 'popular' segment, which includes McDowell's No. 1, Vat 69 and Royal Challenger brands. Sales in the segment fell 22% in the quarter.
In 2023, FMCG ad spends stood at Rs 31,428 crore, a growth of 23% over a year ago, according to the latest Dentsu report. The segment emerged as the highest spender, accounting for 34% of the Rs 93,166 crore advertising market.
Historically, the FMCG sector commands a third of the country’s annual advertising expenditure. About 47% of the media budget goes towards digital media, of which 44% is spent on online video, followed by 25% on social media, the report said. The sector divides its budget equally between digital and television. The rest is spent on radio.