If there is one sector that advertises big-time, it’s fast-moving consumer goods. Soaps, skin creams, shampoos, deodorants, detergents, malted drinks — you name it, the segments are choc-a-bloc with a variety of products from several companies. To protect turf, draw in consumers, launch new variants, and keep up sales growth, FMCG companies spend a lot on advertising and promotions.
But this accounting head, often second only to raw material costs, can be played around with, depending on circumstances. The biggest cost component for FMCG companies is input costs. Inputs encompass vegetable oils, agricultural inputs such as wheat, barley, milk, sugar, a wide range of chemicals and packaging.
In a rising input cost scenario, companies usually cut down on adspend to maintain profit margins. When consumer sentiment is flagging, though, companies can step up spending, even at the cost of margins, as was the case for most of 2013. That changed in 2014.
Now picking up
Between theDecember 2013 and September 2014 quarters, companies didn’t hike their adspend much as raw material costs stayed stubbornly high. In these quarters, the growth in adspend by listed FMCG companies decelerated sharply. The September 2014 quarter saw adspend increase by a meagre 5 per cent over the year ago period, down from the 22 per cent in the September 2013 quarter.
Companies instead kept up sales growth by raising product prices; sales growth has remained range-bound at 12-13 per cent for several quarters now. As a proportion to sales, adspend dropped from 13.7 per cent in the September 2013 quarter to 12.8 per cent in the September 2014 quarter.
But over the past few months, raw material prices across the board – palm oil, agri-commodities, and crude oil derivatives – have cooled off and are set to remain subdued. Companies, thus, have more room to drive advertising and have begun to increase promotional activity, especially with discretionary consumer spending still weak.
Growth in adspend has picked up in the December 2014 quarter, up 10 per cent and accounting for 13.3 per cent of sales for listed FMCG companies. Larger players appear to have begun spending more; Dabur India’s adspend-to-sales figure moved up to 15 per cent in the December 2014 quarter from the 12-13 per cent it had been in the quarters prior.
Britannia Industries and Colgate Palmolive too have similarly upped adspends. Godrej Consumer picked up sharply, with its adspend-to-sales ratio at 11.1 per cent in the March 2015 quarter against the 9.8 and 10.3 per cent in the two preceding quarters.
Smaller firms to the fore
But even as giant Hindustan Unilever and other big spenders Dabur India, Godrej Consumer and GSK Consumer Healthcare trimmed spending between September 2013 and 2014, their smaller counterparts did the opposite. Jyothy Labs, Emami, Agro Tech Foods, and Zydus Wellness, for instance, saw their adspend-to-sales ratio inch higher.
HUL’s adspend-to-sales ratio dipped from 14.1 per cent in the September 2013 quarter to 12.4 per cent in September 2014. Agro Tech Foods, on the other hand, saw adspend account for 9 per cent of sales in the September 2014 quarter compared to the 4.5 per cent in the same quarter in 2013.
Larger players have the advantage of being market leaders in most of their categories, manage easier brand recall, and have a wider distribution presence. This helps, especially in a rising cost environment, as smaller players feel the raw material pinch more. To increase or even maintain market share, smaller players have to work harder.
Jyothy Labs, for instance, needed to push Henko in the HUL and P&G dominated detergent segment. Emami had to break into personal hygiene and deodorants, both of which are intensely competitive.
Adspend modes
FMCG companies took to print media in 2014; the sector was the top advertiser for the print industry, accounting for a 13.5 per cent share in 2014, according to a KPMG report. That’s the second year in a row that the sector has been the top advertiser; the years before belonged to the auto and education sectors. Personal care took the biggest chunk of advertising in print media, at 8.2 per cent, followed by household care at 4.8 per cent.
Digital media is growing the fastest among advertising categories, clocking a 45 per cent growth rate in 2014, according to the KPMG report. But here, the FMCG sector is a smaller contributor, with the telecom and ecommerce industries ranking above it. Digital advertising by FMCG and consumer durables together grew 6 per cent in 2014, compared to the multi-fold growth by telecom and e-commerce.