Consumer goods companies are intensifying their advertising and promotional spending in the next few quarters, aided by the improvement in gross margins over the past three to four quarters due to lower input costs.
Fast-moving consumer goods (FMCG) companies, including Dabur, Marico, and Godrej Consumer Products, highlighted in investor notes that advertising, promotion, and category development spending witnessed a surge in the December quarter. Additionally, some anticipate a further increase in these expenditures in the upcoming quarters.
This year is brimming with events, and companies will eagerly seize the opportunity, according to B. Krishna Rao, Senior Category Head at Parle Products.
“In the next 10 days advertising spending will go up for Ram Mandir, then Lok Sabha elections and multiple sport events such as IPL, T20 World Cup and Olympics. At the same time, spending will also be increased to try to improve demand,” he said.
According to a report from BNP Paribas this week, the trend of gross margin improvement is expected to continue due to lower input costs. However, the report notes that advertising expenditures will remain high. It mentioned that FMCG firms advertise during sports events where advertising costs are relatively expensive.
Competitive Ad Spending by Consumer Goods Companies
In a report earlier this month, Nuvama Institutional Equities stated that for certain FMCG companies, advertising expenditures had surpassed pre-pandemic levels. With margins on the rise and a strategic drive to outperform local competition, advertising spending is expected to stay competitive in 2024, according to the report.
In an investor note last week, Dabur India indicated that gross margins are expected to increase, driven by the moderation of inflation and cost-saving initiatives.
“A significant portion of gross margin expansion will be channelled into enhancing advertising and promotion spends. Consequently, operating profit is expected to grow slightly ahead of the revenue and post an improvement in year-on-year operating margins,” it said.
Consumer goods companies allocate 3-14% of their sales budget to advertising and promotions.
Last week, Marico also mentioned that it increased advertising and promotion expenditures as part of its strategy to enhance the long-term equity of both the core and new franchises.
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