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HUL bolsters advertising budget, increases outlay by INR 679 Crore in Q2

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In the July-September quarter, Hindustan Unilever (HUL) raised its advertising expenditure by INR 679 crore, bringing it back to the 11-12% of sales range seen in the March 2021 quarter after a gap of nine quarters. This move is driven by heightened competitive pressures, and HUL’s Chief Financial Officer, Ritesh Tiwari, has expressed the company’s intention to sustain this level of advertising spending in the future. HUL holds the title of India’s largest advertising spender.

Over the last nine quarters, market turbulence has been driven by both inflation and the Ukraine war. Prominent corporations like HUL and Britannia have highlighted concerns about the resurgence of smaller, regional brands that had withdrawn from the market during the peak of inflation, as well as the emergence of direct-to-consumer brands primarily operating online.

“When you look at tea or detergent bars, smaller players are growing significantly ahead of large players,” Tiwari told analysts on the September quarter earnings call. “We are also seeing a sharp increase in the media intensity. Aggregate media deployment in our category increased by over 20% versus the same period last year.”

During the September quarter, HUL allocated INR 1,720 crore to advertising and promotional expenses, reflecting a significant year-on-year surge of 65%, largely propelled by advertising. This stands out as one of the most substantial sequential boosts in advertising expenditure observed in at least the past 18 quarters for India’s leading FMCG manufacturer. In the preceding quarter, HUL recorded product sales revenue amounting to INR 15,027 crore.

Tiwari stated that the company has incrementally raised its advertising expenditure in recent quarters, progressing from 7.2% to 8%, 8.8%, 9.9%, and ultimately reaching 11.4% in the September quarter, approaching its pre-inflation reference points. He emphasized, “From my perspective, this figure will hold steady, considering the heightened competitive pressures we’re facing.”

HUL’s gross margin exhibited a year-on-year improvement of 700 basis points in the September quarter, reaching 52%, which has now returned to levels seen before the onset of inflation. Just to clarify, a basis point is equivalent to 0.01 percentage point. The last occasion HUL recorded an allocation of more than 11% of advertising and promotional expenses as a portion of sales was during the March 2021 quarter.

In the last quarter, the company implemented additional price reductions for both fabric wash and household care products in order to transfer the advantages of reduced input costs to consumers. Simultaneously, Tiwari explained that investments in advertising for these product categories have been increased to safeguard their competitive standing.

HUL is not the only company taking this approach; other prominent publicly traded consumer goods firms like Colgate-Palmolive and Marico have also increased their advertising expenditures by 26-32% year-on-year during the September quarter. As an example, Marico’s advertising expenses reached double digits, accounting for 10.8% of sales, all the while achieving a gross margin expansion of 685 basis points.

According to industry executives, many companies have been raising their advertising budgets as their margins have improved, thanks to the easing of input cost pressures. This trend coincides with their efforts to reduce product prices in order to stimulate volume growth.

“Contribution margins improved across segments year-on-year (in the September quarter). Commodity price normalisation and product cost-led initiatives will drive further margin improvement,” Havells India chairman and managing director Anil Rai Gupta had told analysts during the company’s earnings call. He said the firm will maintain its advertisement spending.

Nestle India, in an investor presentation, stated that it has increased its advertising and sales promotion costs to 1.3 times the levels observed in 2017 during the first nine months of the current fiscal year. This is in contrast to the 1.4 times increase seen in fiscal 2022 and the 1.5 times increase observed in fiscal 2021.

The company’s fiscal year aligns with the calendar year.

SnackTeam
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