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FMCG ad spend may remain subdued this festive season as inflation hits bottomline hard

Inflation and other geo-political reasons can have a sizable impact on the gross margins and also the sales volume of leading companies, and with this some are also planning to curtail their ad spends in the coming festive season by up to 40%

Multiple factors such as inflation, the Russia-Ukraine crisis, Indonesia’s palm oil ban, and more have hit the FMCG industry hard. This can have a sizable impact on the gross margins and also the sales volume of leading companies, and with this some are also planning to curtail their ad spends in the coming festive season by up to 40%.

According to sources, “An FMCG giant may witness a 50-70% reduction in the ad spends in product lines of cosmetics and skincare manufactured in India, in addition to the biscuits segment. However, on an average, we may witness a 30-40% reduction in the ad-spends of soaps, noodles, and chips.”

Commenting on whether this is going to be a short-term or a long-term phenomenon, the source said, “Since all FMCG players run on a rolling-inventory for their manufacture-cycle which runs for three-four months, this lag-effect on the depleted ad spends are entirely inflation-driven and it is difficult to predict for how long they will last.”

Over 25% of India’s total adex comes from the FMCG category.

Even Rohit Ohri, Chairman and CEO of FCB Group India, had recently told that the challenge of inflation isn’t over, and a greater challenge is looming large over the industry in terms of deciding whether or not to cut their ad-spends in the coming festive season.

However, the responses from other industry experts from Parle and Amul showed a staggered-yet-positive ballgame for FMCG advertising in the coming financial quarters.

Mayank Shah

According to Mayank Shah, Senior Category Head, Parle Products, “As the world is adapting to the new-normal post-pandemic, FMCG brands are eyeing for touching and positively crossing the pre-Covid levels in terms of their sales volume. As a result, the advertising spends which might have been comparatively lower than the planned media-expenditure in the first quarter, will now reach its predetermined level.”

Commenting on the impact of inflation on Parle’s ad-spends, Shah said, “We are expecting a growth of volume during the festive season, and we will stick to our predetermined ad-spends and media. There won’t be a massive impact, but we can increase our ad-spends by 4-5% in the coming quarters.”

Krishnarao Buddha

Adding to this, Krishnarao Buddha, Senior Category Head-Marketing, Parle Products, said, “We did contain our ad-spends to an extent in the first quarter, but now we are planning to be present on media, in a full-fledged manner in the remaining quarters. We are now concentrating to be more active on conventional mediums like television along with continuing our digital advertising.”

“We are not looking for an increase in our ad-spends but will be continuing with the spends that we had planned for the quarter,” he clarified.

As per reports, the inflationary trend which kicked in the first quarter of financial year 2022-23 and has cooled down a bit in the past 15-20 days owing to the slashing of crude and edible oil prices, in India.

“We have seen a 15-20% cooling off prices from their peak across all commodities, which has been a respite to the FMCG players, as the earlier prices were not sustainable and thus resulted in a demand cut-down. But with the staggering increase in the sales volume, Parle currently has no plans of hiking products’ prices and will rather keep them stable,” he added.

RS Sodhi

When it comes to the dairy industry, RS Sodhi, Managing Director, Gujarat Cooperative Milk Marketing Federation (Amul) said, “The dairy industry has registered a tremendous growth both in demand and sales volume, at a 38% increase on a year-on-year basis, despite the inflationary trends.”

Even though the dairy giant has registered a 35-40% increase in the cost of packaging, logistics and energy at their end along with a 15-20% escalation of input costs at the farmers’ end owing to the soaring prices of animal fodder, they have not been able to push the prices of their products more than 8-9%, as it would impact the demand, as per Sodhi.

According to him, Amul is likely to increase its ad spends in the forthcoming quarters by 15-20% since they deal in essential commodities which have witnessed an increase in sales despite inflation.

Concludingly, Sodhi also said that as per the recommendations of GST Council, 5% tax will be levied on curd and buttermilk which is likely to impact the dairy industry.

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