Fast-moving consumer goods (FMCG) companies are looking forward to stepping-up their advertising and promotional (A&P) spends in the coming quarters. With the correction in the prices of some key commodities, there is more headroom for them to concentrate on A&P, said industry players.
FMCG major Hindustan Unilever intends to improve its A&P spends from October-December, said Ritesh Tiwari, chief financial officer (CFO) at HUL, as December quarter net material inflation is expected to be marginally lower than September quarter which would lead to sequential improvement in gross margin and calibrated increase in company’s A&P investment, he said in an interaction with the analysts. The company spent around 7% of its sales on advertisement and promotions during July-September, which according to some analysts was at a multi-year low for a quarter.
Tiwari said that given the broad-based inflation which FMCG industry is facing, the overall amount of media investment in the industry has come down. And because of that, the absolute amount of levels of investment are determined on the basis of what media heat is in the system, he said.
“Now with some amount of cooling off of vegetable oil, we should see slight improvement in the net material inflation and hence we also the sequential gross margin improvement in the next quarter. As that happens, I am also very mindful that media intensity might increase as there is some cool-off in certain pockets of commodities that will happen, and with media intensity increasing, we will continue to do what we have done, which is maintain our share of voice ahead of the share of market,” he said.
A few key commodities for FMCG companies such as vegetable oil, tea, copra, crude have witnessed correction recently from the unprecedented raw material inflation companies have faced over the last 12-18 months. Inflation has been across agricultural commodities, palm oil, crude-linked commodities.
Although FMCG companies did pass on the spike in raw material cost to consumers, they also reduced their advertisement spends due to advertising rates which reduced due to lack of competition from non-FMCG companies and because FMCG companies postponing their new product launches and initiatives during Covid, according to ICICI Securities
Godrej Consumer Products
Infact, GCPL intends to witness an increase in the advertising spend, ‘even from where we are’, over the next four or five years, but in a calibrated manner, Sitapati said.
Similarly, biscuit maker Parle Products is also looking at an intense advertising quarter and even in next quarter it is looking at having a very robust lineup of promotional spends which would help it improve depth of consumption, said Krishnarao Buddha, senior category head at Parle.