India’s fast-moving consumer goods (FMCG) sector has long been the top most spender in the country’s advertising market, commanding nearly one third share (Rs 31,000 Cr in 2023) of the total AdEx, and it maintained the lead even during the Covid pandemic and economic downturns.
However, the advertising expenses of FMCG majors have not kept pace with their consistent growth in revenue. A closer look at their financial reports obtained from Tofler clearly shows that ad spends of HUL, Dabur, Marico among others, are not growing in proportion to their revenues.
Dabur, for instance, witnessed a steady revenue growth between FY20 to FY23 ranging from 2.3-12.0 percent year-on-year. The advertising expenses grew 6.5 percent and 17 percent in FY20 and FY21 respectively, but thereafter declined by 0.9 percent and 20 percent in FY22 and FY23 respectively.
The trend was followed by HUL, Marico and Nestle. Godrej Consumers Products Ltd (GCPL) and ITC have also tightened their purse strings till 2022 though their ad spends witnessed a steep hike in 2023.
Until a few years ago, these FMCG leaders used to spend 7-12 percent of their revenue into advertising and promotional activities. The share has gone down to 5-7 percent in 2023, data reflects.
For instance, HUL’s AdEx to revenue ratio dropped from 11.8 percent to 8.1 percent and in the case of Marico, the drop was from 9.9 percent to 8.6 percent.
HUL and Dabur declined to comment on the story citing the silent period ahead of their Q4 financial results. Other firms are yet to respond to e4m queries. The story will be updated as and when they respond.
Marketing officials from FMCG companies, however, claimed that the data may not reflect a correct picture. “Some of our expenses go directly to retailers which are not usually considered under advertising and promotional expenses carried out through ad agencies," CMOs told e4m, requesting anonymity.
They also insisted that ad spends have never been directly proportional to the revenue as spends often revolve around new product or category launches.
Stagnant TV rates to be blamed?
As consumer behaviours continue to migrate towards online channels, FMCG companies are adapting their marketing approaches accordingly, investing significantly in digital advertising to engage with their target audiences across various online platforms, says Sajal Gupta, CEO, Kioas Advertising.
Veteran adman and MD of Rediffusion Dr Sandeep Goyal blames the stagnant ad rates in the TV industry and a drop in print ad rates for the dwindling FMCG ad expenses.
“The core issue is that media rates have largely stagnated on TV over the last decade. Print has plummeted in ad pricing. Digital pricing can be flexible especially in programmatic. So, budgets have not been under stress,” explains Dr Goyal.
Dr Goyal however points out that sales growth doesn’t necessarily mean that brands’ ad spend should keep rising in proportion. “If the media is already above threshold, then additional inundation is not always warranted. So, there’s nothing surprising there,” he noted.
Shift to Digital
According to a dentsu report released early this year, there has been a notable shift in media spend of the FMCG sector over the last four years, with digital and TV media both accounting for 47%-47% share of the total media expenditure in 2023. It was merely 21 percent in 2020. Print’s share has shrunk to less than 5 percent.
Relentless enhancement and developments in digital infrastructure, benefiting both supply and access sides, has catapulted the growth in segments like OTT, e-commerce, online payments, social media, gaming and esports applications across the entire user base, establishing digital media as the most accessed, utilized and trusted medium among consumers, the report stated.
Anil Solanki, Senior Director, Media Lead, dentsuX, points out that FMCG brands are increasingly shifting their ad budgets towards digital for the reasons ranging from consumer behaviour to cost involved to targeting capabilities.
“Biggest reason in this evolving proportion of landscape is consumer behaviour and preferences. With the advent of digital technologies and the rise of online platforms, prospect buyers are increasingly consuming the content through digital channels,” Solanki stated.
He further noted that digital platforms offer a range of advantages over traditional media, including lower costs, precise targeting capabilities, real-time performance tracking, and the ability to engage with consumers on a more personalized level. As a result, FMCG companies are increasingly allocating a portion of their advertising budgets to digital channels to capitalize on these benefits and adapt to changing consumer preferences.
Shradha Agarwal, Founder and CEO- Grapes, agrees with Solanki, “The FMCG players have identified the major difference in the TVC and digital ads. Driving cost per inventory in a digital platform is much lower than that of inventory in offline mode. Here, it is evident that running an ad on TV, radio, and print is much more expensive, owing to which there is huge difference in AdEx of both the medium.”
What lies ahead?
Ashish Bhasin, Founder of The Bhasin Consulting Group, predicts that the gap between FMCG firms’ revenue and AdEx will grow further in the coming days, considering the internet’s expanding reach in India.
“India has close to 800 million internet users as of now. Over 200 million more users are likely to be added in the next 18 months and these consumers will belong to tier 2, tier 3 cities and rural areas. Clearly, digital media’s reach will be equalling TV in the coming years. FMCG brands, which are perennial spenders, and advertise mainly for the reach, would increase their digital ad spend further,” Bhasin explains.
According to Agarwal, looking at the future prospect, it is expected that the digital medium aiming at storytelling will play a pivotal role in building the brand to break the clutter and ultimately steer lower funnel awareness.
Solanki noted that AdEx for digital is still at a nascent stage and will take time to track all the spending platforms hence we need to take it (FMCG firms’ changed communication strategy) with a pinch of salt
