Driven by smartphone adoption, extended 3G coverage to the bulk of the Indian population and concerted efforts by digital companies, digital advertising has grown rapidly at a five year CAGR of 43.1% (2010-15), compared to the overall advertising industry growth of 12%. As a result, companies’ advertising spending on digital media has increased from 1% in 2008 to 6% of their total advertising budgets, and the industry expects this to reach 12% by 2020F. The fast-moving consumer goods (FMCG) industry is currently the third largest spender in the digital media space.
These are global trends
Globally companies are increasing brand spending in digital channels. Additionally, FMCG brands are digital advertising leaders in many markets—in the UK, digital spending by FMCG companies is now a third of all consumer company advertising spending. Mondelez, at a global level, said that it expects digital media to represent 30% of its total media spending, about double that at the end of 2014. Companies in the beauty and personal care space have worked towards this, and we see significant initiatives from them to increase their digital footprint.
We see this as a cost saving
FMCG companies in India are adapting to this trend; most companies under coverage have hired new executives with experience in this field. Using the digital medium provides companies with an easier and cost effective way for new product development. They are also able to engage with the consumer over a longer period of time, compared to TVCs and radio advertisements. Cost savings in our view are the largest benefit; while initially we do not expect companies to cut back on advertising spending, once they leverage the digital platform efficiently we expect 10% reduction in media spending.
Potential beneficiaries – HUL, Dabur, CLGT and GCPL
In our view, companies that have a presence in categories targeting consumers aged 10-40, with an urban presence and focus on premiumisation have a distinct advantage in being able to leverage the digital platform effectively. We estimate margin expansion for CLGT to be 175bp once it efficiently leverages this platform, while HUL, Dabur and GCPL should see Ebitda margin expansion of 140bp, resulting in 8% increase in Ebitda.
India is at the cusp of a technological revolution. Digital advertising in India has seen a warranted increase, and FMCG is no exception to this industry trend. With new product development becoming easier and the length of engagement with the consumer increasing, we expect spending in this medium to increase. We like companies that have a modern product portfolio, strong global influence, marketing prowess and have been proactive historically.
Growth at 40% compared to industry average of 12%
Digital advertising has grown rapidly at a 5-year CAGR of 43.1% (2010-15), compared to the overall advertising industry growth of 12%. This rapid growth continued in 2015, with growth in digital advertising of 38.4% over 2014. This digital ad-spending is on multiple marketing strategies from search and display advertising, to email, mobile and video ads, social sponsored content and more recently SMS based advertising.
Share of overall advertising-spending to increase
Digital advertising-spending as a percentage of total advertising spending has increased over the past few years, and we expect this to continue. In 2008, digital advertising spending accounted for only 1% of total advertising spending, and this increased to 5.6% in 2015. With digital media advertising expected by FCCI-KPMG to grow faster than any other advertising category over the next five years, they project that the share of digital advertising spending will be 12.3% in India by 2019. They also project India to be among top three countries in APAC region as regards its CAGR (2012-2016) in digital media ad spends.