FMCG firms to lower ad spends, new launches amid rural slump

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Published: January 7, 2020 3:35:52 PM

The rural slowdown has been a major pain point for FMCG brands for close to a year now and as no signs of revival are expected soon, the companies are likely to keep a check on their advertisement expenditure and new launches.

The third quarter of fiscal 2019-20 is also under pressure for fast-moving consumer goods companies with volume growth of major FMCG companies expected to be in low-to-mid-single digits. (Reuters)

The rural slowdown has been a major pain point for FMCG brands for close to a year now and as no signs of revival are expected soon, the companies are likely to keep a check on their advertisement expenditure and new launches. “Ad-spends and new launches are expected to remain lower than usual as companies await signs of revival,” Motilal Oswal said in a report on Tuesday. With the exception of Colgate Palmolive, which is expected to raise its ad-spends by 12%, according to an Emkay report, other major brands will lower ad-spends. The ongoing slowdown permeated to 3QFY20 as well owing to floods, liquidity concerns and weak rural demand. “The weak demand environment saw a rise in competitive intensity in the form of promotions and price-offs. This means that benefits of low material costs are now not expected to be as high as it would have been in a more favourable operating environment,” the Motilal Oswal report added. 

The third quarter of fiscal 2019-20 is also under pressure for fast-moving consumer goods companies with volume growth of major FMCG companies expected to be in low-to-mid-single digits. However, some brands are also expected to buck the pessimism trend. “Nestle and Jubilant are expected to outperform with close to double-digit sales growth. We expect ITC to record a stable cigarette performance,” another research report Emkay said on Tuesday. 

However, not all retail segments are expected to show sluggish growth trends. “Within retail, growth trends are expected to be mixed across fashion, jewellery and quick service restaurants (QSRs),” the report Emkay added. Meanwhile, leading FMCG company Marico has already hinted at weak Q3 performance and said that the consumption trends during the December quarter don’t signal any improvement in sentiment any sooner. “Overall consumption trends during the quarter belied expectations of the beginning of a revival in sentiment which was built on the back of good monsoons and announcement of various government measures,” Marico said in an exchange filing last week. The shares of the company had tanked after the announcement. 

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