FMCG companies' ad spend decline highlights trouble in India growth story?
One of the largest FMCG companies, Hindustan Unilever (HUL), in India has decided to curb its ad and media spends in the country after poor macro-environment and lower new product launches.
Fast moving consumer goods (FMCG) companies are one of the largest advertisers. And when the scale back on advertising, one can failr deduce that consumers are not spending.
One of the largest FMCG companies, Hindustan Unilever (HUL), in India has decided to curb its ad and media spends in the country after poor macro-environment and lower new product launches. It's ad spends in Q2 FY17 dropped by 7.6% year on year (YoY).
The ad spends of HUL during the quarter was Rs 851.38 crore in comparison to Rs 921.04 crore in the corresponding quarter last year.
Ad spend as a percentage to net sales also declined by 80 basis points (bps) from the corresponding quarter last year.
This is worrying, not only for media companies but economy as a whole.
Moreover, FMCG companies such as HUL have been the daily staple in terms of ad revenues. The sector contributed a large 28% of media spends in the previous year, which was at Rs 12,364 crore.
The sectors which came closest to this were e-commerce and automobile which were at a distant Rs 4,231 crore and Rs 4,105 crore in 2015, respectively.
For instance, in 2015, HUL was the top advertiser with ad spends of Rs 2,300 crore to Rs 2,500 crore, according to the Pitch Madison report. The closest to it was Amazon which had a much lower ad spend of Rs 900-1,000 crore.
An ICICI Securities report also said that with the rising raw material prices, smaller companies will tend to curtail ad-spends and HUL will continue to maintain competitive ad spends.
It is not only HUL among FMCG brands which has reduced its ad spends during the quarter. Dabur's ad spends has declined by a huge 31.5% yoy, as it reported ad spends of Rs 149.41 crore in comparison to Rs 196.52 crore in the same quarter last year.
Even Marico reported a smaller decline of 1.03% in ad spends during the quarter. Marico's ad spends declined to Rs 188.94 crore during the quarter from Rs 190.90 crore in the same quarter last year.
A spokesperson from Dabur said that the reason for the lower marketing spends has to do with the new accounting standards -- IndAS. "Our ad spends are pretty much intact and there is no significant lowering of spends. In India, we have maintained our media spends at last year's levels. In fact, there has also been a significant uptick in consumer promotions during Q2 of 2016-17," the spokesperson added.
However, HUL and Marico did not respond to queries sent to them.
While FMCG ad spends may have slowed down to higher raw material costs, poor results and lower new launches, the report said that the spends from automobile and telecom sector companies will ensure no meaningful slowdown in overall ad spends.
Ad spends especially from the telecom sector is expected to rise due to the entry of new competitor Reliance Jio, it added.