The FMCG sector has been severely impacted by a number of factors that include inflation, the Russia-Ukraine conflict, Indonesia’s prohibition on palm oil, etc. Leading businesses may experience a substantial impact on their gross margins as well as sales volume as a result, and some are even planning to reduce their advertising expenditures for the upcoming holiday season by almost 40%.
Sources claim that in addition to the biscuits market, one of the FMCG giants may observe a 50-70% fall in the ad spend across the cosmetics and skin care products that are developed in India. Consequently, in ad spending, they might see a 30-40% dip in the amount spent on promotions for chips, soups, and noodles.
When asked if this is going to be a short-term or a long-term phenomenon, the source says that since all the FMCG players happen to be on a rolling inventory for their production cycle, which runs for three-four months, this slowdown effect on drained ad spends is purely inflation-driven and it is indeed hard to predict as to how long they are going to last. Notably, the FMCG sector accounts for more than 25% of the country’s total ad-ex.
A greater problem is lurking over the industry in terms of determining whether or not to lower the ad spend in the upcoming festive season, as per Rohit Ohri, who is the Chairman and CEO of FCB Group India. He went on to confirm that the battle of inflation isn’t over.
However, brand consultant, Abhimanyu Mishra from Brandfizz, opines that India is going to profit from the booming consumer demand as disposable incomes rise swiftly and the underdeveloped advertising sector catches up in no time.
The comments from other industry experts such as Parle and Amul indicate that FMCG advertising in the upcoming fiscal quarters will be mixed but a positive bag. As the world adjusts to the new normal post pandemic, FMCG brands are striving to hit and significantly cross the pre-COVID levels when it comes to their sales volumes, says Mayank Shah from Parle Products. Due to this, the advertising expenditures, which may have been somewhat lower than anticipated in the first quarter, are expected to reach their predefined threshold.
Addressing how inflation has gone on to affect Parle’s advertising expenditures, Shah said that they are anticipating a surge in volumes as far as the festive season is concerned, but they will adhere to their pre-defined ad spends and media. There is not going to be much of an impact, but there is a possibility of increasing their advertising budget by 4-5% going forward.
Adding to this, Parle’s Senior Category Head in Marketing, Krishnarao Buddha, said that they did control their ad spends to some level in the first quarter, but now they are intending to be visible on media in an all-out manner in the upcoming quarters. In addition to continuing their digital advertising, they are now focusing on becoming more aggressive on traditional platforms such as television. He further emphasised that they are not expecting an immediate increase in their ad spending and will continue with what is planned for the quarter.
Parle has witnessed a 15-20% cooling off of prices from their peak, among all commodities which has indeed gone on to provide relief to the FMCG businesses since the earlier levels were unsustainable and led to a decline in demand. That said, Parle has no intention of raising the product prices and will instead maintain them unchanged because of the startling growth in sales volumes.
The dairy business has had great growth in both demand and sales volume, up 38% YoY despite inflationary trends, as per RS Sodhi, MD, Amul. Even thought the dairy giant has seen a 35-40% increase in the packaging, logistics, as well as energy costs at its end as well as an increased input cost of 15-20% at the farmers end due to the skyrocketing prices of animal feed, they have been unable to push the prices of their products by more than 8-9% as doing so would negatively affect the demand. Since Amul deals in essential commodities, which have seen a surge in sales despite the inflation, Sodhi predicts that the company is most likely to bloat its advertising spend in the upcoming quarters by 15-20%.
Finally, Sodhi also added that the GST council’s suggestions would see a 5% tax imposed on buttermilk and curd, which may go on to have an effect on the dairy sector.
