FMCG firms ready with bigger ad spend

Record robust 10-15% growth till September.

FMCG sector players such as Marico, Godrej, CavinKare are planning more product launches and increasing their advertising and branding (A&B) spends to beat the slowdown blues.

FMCG companies have maintained a robust 15-20 growth during the calendar year from January to September. “Of this, 50 per cent is value increase due to the price hikes that were effected during the course of the year, and 50 per cent through volume growth,” says Abheek Singhi, partner and director, Boston Consulting Group.

“The sector will continue to invest in brand-building and promotions,” says Anand Shah, analyst, FMCG sector, Angel Broking. The reason: “FMCG sector prices are likely to stabilise by FY2009-10 and hence the value growth would reduce. To maintain its double digit growth rates, the sector would need to grow the volumes,” said Shah.

“Marketers are rain makers,” says Sameer Satpathy, marketing head, Marico, while explaining the need for him to drive the top line growth despite the market conditions. As such, even though the company has yet not experienced a slowdown in the demand, Satpathy feels the need to be prepared for the worst. “We are on a boat with leaks and are aware that this boat may sink. Our only advantage is that we are in a drier spot,” he said.

His strategy for the tough times is giving a fresh impetus to the overall portfolio including haircare, beauty and wellness, functional foods and edible oils. “The need to refresh our brands is more acute now. There will be a lot more of product launches and repositioning happening in the next 3-4 months. We will increase our portfolio in all segments and across all price points,” says Satpathy.

The line of thought is common to the sector. “We will continue to spend money for better returns,” says H K Press, executive director and president, Godrej Consumer Products. The company is increasing its spends across the television, print and radio medium in FY2009-10. “Our advertising and branding (A&B) spends will be increased by 35-40 per cent in FY10 as compared to the current fiscal,” says Press.

However, despite the enhanced outlays for A&B, companies are looking at adopting cost -cutting measures. While Marico is looking at gaining savings of 5-10 per cent from non-essential expenditures such as cutting down on travel of company executives for events and conferences, CavinKare is looking at reallocation of budgets for increasing its operating margins.

“Our overall A&B budget will grow in FY10 as compared to the current financial year. However, as a percentage of sales, the A&B spends will reduce by a meagre 1 per cent. This is necessary as we need to improve our operating margins, which are still under pressure due to the high input costs experienced earlier in the year and the increasing rate of the dollar vis a vis the rupee,” says Ramesh Vishwanathan, vice-president (Marketing), CavinKare.

The company is launching new products variants in the Fairever fairness cream and Chick Satin shampoos range in the coming quarter. “These launches will be supported by the usual A&B spends required to promote and sustain a brand launch,” states Vishwanathan.