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Consumer packaged goods companies spent more on advertising and promotion in the three months ended 30 June compared with a year ago to grow sales in a sluggish market, and to prepare for a revival in demand that they see starting in September.

The country’s largest packaged goods company, Hindustan Unilever Ltd (HUL), increased its advertising and promotion spending by 22% in the three months ended June. Britannia Industries Ltd increased it by 15.6%, Emami Ltd 38.1%, Dabur India Ltd 15.5% and Colgate-Palmolive (India) Ltd 11.08%.

One reason for the increased spending is simply that the companies have the room to spend more—lower raw material prices that haven’t necessarily been passed on to consumers.

Another is that they need to spend more to push sales in a sluggish market.

But analysts are increasingly pointing to a third reason—an imminent revival in demand that is seeing the companies spend more.

Last week, the Reserve Bank of India said consumption demand, especially in urban areas, is picking up. According to research firm Nielsen, consumer packaged goods as a category grew 11% by value in the April-June quarter compared with a year ago. The growth rate was around 7% in the quarter ended March.

In April-June, the food category grew by 12% and non-food by 10.8%. In the January-March quarter, the growth rates were 9% and 7%, respectively. “Urban consumption of consumer packaged goods has seen a slight revival and pick-up. This trend can be seen in categories that are more urban-centric such as chocolates, diapers, sanitary napkins, hair conditioners and deodorants," Nielsen said in a report.

“The revival is around the corner and marketers will naturally push products through advertising and promotions, including at the trade level, to grab the uptick on consumption. Urban markets have already started showing higher consumption after a few quarters," said Abneesh Roy, associate director (institutional equities research), Edelweiss Securities.

Companies agree.

After announcing Marico Ltd’s results for the quarter ended 30 June, Saugata Gupta, managing director and chief executive officer, said: “We believe that urban consumption will be better in the second half as all indicators are pointing towards an urban demand recovery."

Indeed, some companies are already preparing for this with new products.

Emami’s chief financial officer N.H. Bhansali said the company allotted around 20% of its advertising and promotion expenditure in the quarter ended 30 June to new launches.

“We expect business to grow well in the second half of the current financial year with the onset of the festive season and winter," he added. Winter sees an increase in the sale of several skin care products.

HUL chief finance officer P.B. Balaji, in the company’s earnings call for the first quarter of 2015, said the size of the advertising and promotion budget was a function of the competitive intensity in the marketplace and the “innovations pipelines".

“The reason for the increase, some of it is obviously price-led, the promotions part of it is price-led and the advertising part of it was more linked to the kind of innovation pipeline that we’ve had as well as competitive intensity," added Balaji.

HUL and Dabur did not respond to queries. ITC Ltd does not disclose details of quarterly advertising and promotion spending.

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