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Consumer product firms splurged on ads in Q2

Consumer product firms splurged on ads in Q2
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First Published: Mon, Nov 02 2009. 01 15 AM IST

Updated: Mon, Nov 02 2009. 10 39 AM IST
New Delhi: To support new product launches and drive sales volume, consumer goods companies splurged more on advertising and promotions, or A&P, in the quarter ended 30 September. Such spending saw an increase both in absolute terms and as a percentage of net sales.
The increase ranged from 27% to 109% during the three month period, much higher than the corresponding period last year and also compared with the June quarter, during which the rise was between 18% and 50%.
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A fall in the prices of key commodities during the second quarter helped consumer goods makers boost margins, giving them more elbow room to expand spending on advertising and promotions.
“The spends have gone up due to two reasons—one, firms have started fearing a slowdown in rural demand and some pockets of urban market, so in order to increase awareness, they (companies) spent more. Second, savings resulting from low input prices have helped,” Sameer Deshmukh, an analyst at Mumbai-based brokerage Tata Securities Ltd, said.
According to numbers reported by listed firms, the pack was led by Godrej Consumer Products Ltd, or GCPL, which increased its ad spending by 109% in absolute terms to Rs50.9 crore compared with same quarter last year.
As a percentage of net sales, an increase of around 5 percentage points was effected by GlaxoSmithKline Consumer Healthcare Ltd, or GSKCH. According to Mumbai-based brokerage firm Angel Broking Ltd, GSKCH spent Rs32.5 crore in the September quarter, largely on account of significant gross margin expansion and to support new launches. “Going ahead, the company has guided for higher ad-spend in the range of 14-15% of sales to support its new launches,” said a report by Angel Broking.
“We ploughed back the savings from softer commodity prices into ramping up our A&P spends during the quarter. Our A&P spends were at a high level in the first two quarters in view of the host of new initiatives undertaken by Dabur, including the launch of our Uveda range of ayurvedic skin care products,” Sunil Duggal, chief executive officer, Dabur India Ltd, said.
Similarly, Marico Ltd thought it more important to retain and extend consumer franchises than retaining enhanced margins. “Marico ploughed back a significant part of its increased profitability into A&P. The extra spends went primarily into the main resource engines—Parachute, Saffola and Kaya—in India, and also in building brands in Bangladesh and the Middle East and North Africa,” Milind Sarwate, head, strategy and human resources, Marico, said.
Market leader Hindustan Unilever Ltd (HUL) increased its ad spending by 38% during the quarter compared with the year-ago quarter. The expenditure was “driven by relaunches, substantial step-up in media support and mix impact of higher personal products sales,” HUL said in a statement.
Increased ad spends helped most companies post higher sales volumes and garner market share. For instance, GCPL registered its highest ever market share in the soaps category, with brands such as Cinthol and Godrej No. 1 at 10.9%. GSKCH’s volume growth during the quarter stood at 6%. Even in the case of Dabur, volume growth was reported across all key categories.
However, market leader HUL saw a marginal increase of 1% in volumes despite a 38% increase in ad spending during the quarter. According to analysts, it is a cause of concern for the company.
“Despite a substantial increase in ad spends, the volume growth is negligible,” said Deshmukh of Tata Securities.
Though ITC Ltd, which has personal care products under the Fiama Di Wills, Vivel Di Wills, Vivel and Superia brands, does not report quarterly numbers on A&P, the company has been aggressive on this front.
ITC has launched many products under its various brand names and is expected to roll out more in the next two quarters. According to data collated by AdEx India, a division of TAM Media Research Pvt. Ltd, ITC was sixth in the list of top 10 FMCG advertisers on TV during January-September period in terms of ad volumes.
However, unlike others, leader in the oral care market Colgate Palmolive India Ltd cut back on advertising. The company spent 16.9% of its net sales on A&P during the quarter, compared with 20.6% in the same period last year.
According to analysts, despite the cut, Colgate’s ad spending as a percentage of sales is still higher than any other firm. “The company is a market leader and its volumes are also growing, so there was not need for it to increase ad spends,” said Deshmukh.
Data collated by AdEx India shows that consumer product makers were generous in spending money on both television and print advertising during the year.
During the first half, five categories—toilet soaps, aerated soft drinks, shampoos, toothpastes and milk-based beverages—were among the top 10 categories on both TV and print, compared with four in the same period last year, in terms of ad volumes.
Graphics by Yogesh Kumar / Mint
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First Published: Mon, Nov 02 2009. 01 15 AM IST
More Topics: Consumer goods | Ads | Sales | Godrej | GlaxoSmithKline |