FMCG majors high on ad spends amid slowdown

A major reason for the high growth in advertising spends as these companies are keen on higher volume

Fast-moving consumer goods (FMCG) companies, a safe haven through most of the slowdown, have felt consumption blues of late. While the annual revenues of these companies have increased 15-20 per cent, their advertisement and sales promotions spends have risen 25-30 a year.

ITC, one of the biggest companies in the Indian FMCG space, spent Rs 806.65 crore on advertising in 2012-13, against Rs 682.69 crore in 2011-12. At Rs 502.37 crore, Dabur India’s ad spends jumped 27 per cent in 2012-13.

In 2012-13, Hindustan Unilever spent Rs 3,231.88 crore on advertising and promotional activities, compared with Rs 2,634.79 crore the previous financial year, a rise of 22.66 per cent. During the same period, city-based FMCG company Emami’s spends rose 21.18 per cent to Rs 253.11 crore.

A major reason for the high growth in advertising spends is these companies are keen to record volume growth. A Dabur India official says while, on an average, 14-15 per cent of its revenue is allocated to advertising spends every year, this changes quarter to quarter. “The ongoing quarter has seen higher spends than the previous one. It is important to continue ad and promotional spends, as its one of the key segment for any FMCG company,” the official added.

In the past, high advertisement spends have taken a toll on the margins of many companies, though analysts say this is peculiar to the way FMCG companies operate in India.

“The biggest of the companies have faced margin issue, owing to high ad spends, but this has to be continued. Else, one would lag in terms of presence in the segments it is targeting,” said an analyst at Sharekhan.

He added companies had lined up an array of launches and some products had undergone re-branding, too. “You have to supplement these exercises by a number of marketing activities and promotional events. It always had an impact on margins, but this is one of the important ways to bring the eluding volume growth back.”

This financial year, a number of companies such as ITC, Dabur and Emami have launched new products, and these, too, have seen robust spends on promotional activities.

Company	FY13 (Rs in Crore)	FY12 (Rs in crore)	Change (%)
ITC	806.65	682.69	18.16
HUL	3,231.88	2,634.79	22.66
Dabur	502.37	397.66	27 (almost)
Emami	253.11	208.87	21.18
Britannia	534.28	419.6	27.33

Source: Company Annual Reports.