In a scenario where the Reserve Bank of India (RBI) has downgraded the gross domestic product (GDP) growth rate for 2013-14 (FY14) to sub 5 per cent level, major fast moving consumer goods (FMCG) companies have raised their advertising and promotion spends in the first six months of the current fiscal (H1FY14). Further, this trend is likely to continue in the second half of the current fiscal (H2FY14) as well.
While Hindustan Unilever (HUL), the FMCG giant has reported a 16 per cent increase in advertising and promotion spends (ad spends) to Rs 1843.8 crore during H1FY14 over the corresponding period last fiscal, Dabur has witnessed a 17.5 per cent increase in these spends to Rs 481.67 crore. Similarly, Colgate, Jyothy Laboratories, and Emami have seen an increase of 28 per cent, 50 per cent and 9.42 per cent respectively during the period under review.
Even in the second quarter of FY14 (Q2FY14), ad spends of FMCG companies were on the rise. Amongst these five companies, Colgate-Palmolive (India) saw the maximum per cent increase of 34.36 per cent, followed by Jyothy Laboratories (30.5 per cent), Dabur (25.8 per cent), HUL (24 per cent), and Emami (4.8 per cent).
Looking at the ad spends to sales ratio, in case of HUL it stood at 14.14 per cent during Q2FY14, up nearly 165 basis points over the corresponding quarter of previous fiscal. While Dabur’s ad spends as a per cent of sales stood at 13.01 per cent, up nearly 113 basis points over Q2FY13, Colgate’s ad spends accounted for 13.34 per cent of sales, an uptick of 185 basis points over Q2FY13.
Similar trend was witnessed in the last fiscal (FY13), where HUL reported a 22 per cent increase in ad spends to Rs 3290 crore. Further, Dabur witnessed a 27 per cent increase in these spends to Rs 837 crore. Likewise, Colgate, and Emami have seen an increase of 35 per cent, and 22 per cent respectively during the period under review.
Confirming the trend related to the increase in ad spends, HUL in its latest result press release stated, “Overall industry media spend was up to its highest levels in over 18 quarters, with a particularly sharp increase in Oral Care. We invested at competitive levels across segments with a significant step up in Personal Products- overall A&P spend was up by Rs 185 crores (+165 bps) in the quarter.”
Explaining the factors behind the increased ad spends, Kaustubh Pawaskar, Research Analyst at Sharekhan, who tracks FMCG sector closely averred, “The major reason behind it (the increased ad spends) is to woo consumers amidst the slowdown in order to improve the sales. Another reason is the heightened competitive intensity.”
Reiterating the view, A K Prabhakar, an independent analyst, said, “FMCG sector is facing the heat as incremental spending from consumers is missing. During Q2FY14, Colgate has registered a significant increase in ad spends to counter the competition from P&G, HUL and GSK Consumer. Although higher ad spends has dented the margins yet the company has gained market share.”
When asked about the outlook for ad spends in the remaining half of current fiscal, Pawaskar at Sharekhan opined, “Companies will be increasing their ad spends to support product launches and in order to gain market share.”