FMCG cos raise ad spend, slash budget for promotions

Written by Lalitha Srinivasan | Mumbai | Updated: May 14 2014, 10:25am hrs
FMCG firms like Hindustan Unilever (HUL) and Dabur India have stepped up their spend on media advertising but have lowered the budget for promotional activities in their A&P (advertising & promotions) in Q4 FY14. Likewise, Godrej Consumer Products (GCPL) has also allocated 65% of its A&P spend on advertising in the last two quarters of FY14. Increasingly, FMCG companies are allocating a higher proportion of their A&P spend on media advertising to reach out to a wider target audience.

On HULs strategy, the companys chief financial officer R Sridhar said, We have increased our spend on advertising but lowered our budget for promotions in Q4 largely in soaps and detergent categories as cost inflation is higher during this quarter.

In FY14, HUL has increased its A&P spend by 40 basis points around R385 crore as compared with FY13. HULs A&P spend accounts for R3,674.6 crore in FY14 compared with R3,289 crore in FY13.

However, spending on A&P as a percentage of sales was down 11.8% in the fourth quarter of FY14 compared with 12.7% in March quarter of FY13, and 11.2% in the third quarter of FY14.

On the rationale behind allocating a higher proportion to advertising in Q4, HUL chief executive Sanjiv Mehta said, Oil prices have gone up and input cost are going up. As retail prices are up, we reduced our promotional activities. Our aim is to recreate value for consumers.

Like HUL, Dabur India has also cut down on its promotional activities in Q4 of FY14 to counter rising input costs.

According to Dabur India CEO Sunil Duggal, the split ratio between its A&P spend was 70:30 in Q4. We are reducing our spend on promotional activities across categories as there is a lot of pressure due to rising input costs, he said.

Incidentally, Dabur has been progressively increasing its spend on advertising in Q2 and Q3 of FY14. Daburs split ratio between A&P spend stood at 60:40 in FY13. Dabur allocates 12.9% of its revenues to its A&P budget every year. In FY14, Daburs A&P spend accounts for R999.67 crore compared with R837 crore in FY13.

GCPL, makers of Cinthol soaps, had allocated 60% of its A&P spend on advertising in the last two quarters of FY14. We have maintained our ratio of advertising and promotions spend to that of previous quarters. We allocate around 60-65 % on mass media advertising and 35-40% for GCPLs promotions, GCPL MD Vivek Gambhir said.

According to a spokesperson from GCPL, the companys A&P as a percentage of sales was about 10% for 2013 fiscal and 10.6% for 2014 fiscal.

So our A&P as a percentage of sales is roughly trending to somewhere between 10% to 10.5%. We intend to maintain that kind of a range going forward, he added.

In FY14, GCPLs A&P spend stands at R833 crore while it was R652 crore in FY13.

With sales revenues of R18,150 crore (for FY13), Gujarat Cooperative Milk Marketing Federation, makers of Amul brand, allocates 1% of its sales for its A&P spend.

Our marketing focus is more on advertising and less on promotional activities. The split ratio between our A&P spend is 85:15. I think advertising yields better results for our dairy products, Amul managing director RS Sodhi said.

According to industry analysts, to beat the cost inflation, Indian FMCG companies are now cutting down on promotional activities but are increasing spends on advertising. The split between advertising and sales promotions has changed for many FMCG companies in the last few quarters. This concept will gain further momentum in the next few quarters, said an industry analyst from a domestic brokerage firm in Mumbai.