Despite a sharp cut in the advertising budget of top FMCG companies, the overall ad spend has shown a resilient growth in the first quarter of the current financial year.
The growth has been slower when compared to the same period of FY17. But the green shoots are already visible and industry is hoping for bumper advertising spend ahead, riding on the upcoming festive season and a good monsoon.
“Our advertising figures show a growth of over 10 per cent in Q1 in the FMCG category alone. Other categories haven't done badly as well," Sam Balsara, Chairman, Madison World, said.
Top FMCG companies had to cut their advertising expenditure in the first quarter because of slowing demand and various other factors. For instance, Dabur spent Rs 46 crore less in this year’s Q1 vis-a-vis last year’s Q1. This was about 25 per cent cut in the spending. Similarly, Colgate Palmolive too cut down its spends by 8 per cent, as the company spent Rs 143.35 crore in the quarter ending June 30, 2017 compared to Rs 155.6 crore in the same quarter last year. HUL, however, increased its spends by 2.84 per cent in this quarter.
Balsara said the company balance sheet figures don't show the clear picture and the market scenario wasn't as bad. “Balance sheet figures are misleading because these figures are not exclusive advertising figures and include expenses on promotion, point of sale (POS), and below-the-line (BTL), among others," he said.
Ashish Bhasin of Dentsu Aegis Network said that despite all odds, the advertising expenditure did register a single digit growth.
"The growth was muted because of various factors but it would still be a single digit growth,” said Bhasin. "Demonetisation and GST had an impact but it wasn't as damaging," he added.
Shashi Sinha, CEO, IPG Mediabrands too suggested that they have observed a growth in the ad spends and not otherwise.
“In real time, we have not seen any dramatic drop. We have rather seen a rise in the spends for Q1. However, there might be slower growth in Q2, since July was a struggle for a few companies because of the understanding and implementation of GST.”
Majority of the annual advertising spends are during the festive season, which is between October, November and December. Last year, this period was hit because of the demonetisation roll-out on November 8.
The experts believe the festive season might be as good or better than the regular (before last year). According to some estimates, the advertising spend during the festive season would be around Rs 24,000 crore.
Sinha said, “As of now, festive sentiment is good. Normally, the planning starts around September third week. In the long term, GST should settle down since GST has affected supply to some extent but consumer offtake is good.”
If the festive season scores as good as expected, then it will only help in giving a better annual result.
Bhasin explained that the single digit growth of Q1 can be neutralised to some extent if the second half is good. “The second half – when 40 per cent of the spends happen between Ganpati and New Year – is expected to touch 15-20 per cent, we hope. This would bring the annual average to about 12-13 per cent. A lot depends on the festive season, but considering that monsoons have also been very good the rural spends will also get a boost.”
But isn’t 12 per cent too less than average of the previous years? Could this have been any better?
Bhasin answered, “We are not going to have that 25 per cent growth years any more. It is averaging around 12 per cent for the last few years. This year should be at par or slightly better.”
Since TV is the biggest earner in general, it is expected to be the worst hit if the ad spends decrease. Bhasin opined, “Digital will be the fastest growing medium while magazines are showing negative growth. English print is growing slowly though regional has a better pace. TV is at 10 per cent and outdoor too would be better.”