FMCG giants slash ad spends amidst demand slowdown in Q3 FY25

Major fast-moving consumer goods (FMCG) companies in India have reduced their advertising expenditure during the quarter ended December 31, 2024, reflecting the broader market slowdown and subdued consumer demand.

Hindustan Unilever Limited (HUL), the sector bellwether, recorded an 8% year-on-year decline in advertising spending to Rs 1,466 crore, following a 15% reduction in the previous quarter.

The trend was echoed across the industry, with Dabur India reporting a 7.3% decrease in advertising expenditure to Rs 226.7 crore, while Colgate-Palmolive's Indian operations witnessed a 2% dip to Rs 1,452 crore.

However, Marico bucked the trend with a 19.1% increase in advertising spend to Rs 293 crore, compared to Rs 246 crore in the corresponding period last year.

Urban slowdown versus rural recovery

The reduction in advertising budgets comes against the backdrop of a notable deceleration in urban demand, even as rural markets showed signs of gradual recovery.

According to the latest Kantar FMCG Pulse report, sector growth slowed to 4.3% during August-October 2024, down from 6.4% in the same period last year. Urban regions particularly suffered, with volume growth declining to 4.5% from nearly 7% year-on-year.

HUL's chief executive officer and managing director, Rohit Jawa, addressed these concerns during the company's earnings call, stating that "FMCG demand trends remained subdued in Q3 FY25, with continued moderation in urban growth while rural sustained its gradual recovery." 

Dabur India's CEO, Mohit Malhotra, echoed similar sentiments, noting, "The quarter presented a challenging operating environment, marked by unfavourable weather conditions and a slowdown in consumption. India experienced delayed and contracted winters, with October and November being the warmest in many years, while urban demand showed signs of moderation; the rural markets remained resilient. The rural business has outperformed urban business for the fourth consecutive quarter."

The impact

The ripple effects of reduced FMCG advertising were felt across the media sector. Zee Entertainment's CEO, Punit Goenka, acknowledged during their Q3 earnings call that "the muted spending by FMCG brands in a festive quarter further slowed the pace of growth for the industry at large". 

He further explained, "Although there was a marginal pickup in the rural recovery, the lacklustre sentiment in the urban market led to weaker demand and impeded significant growth. This in turn also impacted our advertising revenues during the quarter."

While most companies reduced their advertising spending, some maintained or increased their investments. Emami, fresh from rebranding its flagship men's grooming product from 'Fair and Handsome' to 'Smart and Handsome', increased its advertising expenditure by 6% year-on-year to Rs 176 crore.

Marico's significant increase in advertising spend to Rs 293 crore stood out as a notable exception to the industry-wide trend of reduced marketing investments.

Budget brings hope

The recent Union Budget 2025 has injected optimism into the sector. Industry leaders view the government's measures, particularly the tax exemption, as potential catalysts for increased consumer spending.

Mayank Shah, vice president of Parle Products, expressed enthusiasm about the budget's potential impact: "The Union Budget takes a bold step toward spurring demand for consumer goods, addressing challenges the sector has faced over the past few years. For instance, making an effective tax-free income of Rs 12.75 lakh is quite effective as it increases consumption due to higher disposable earnings."

The capturing of rural demand via targeted agricultural investment across 100 regions, along with MSME aid assistance, will serve the dual purpose of creating additional employment and uplifting spending power, he added.

This optimistic outlook was reinforced by Shivam Puri, Managing Director and CEO of Cipla Health Limited, who stated, "The increase in the tax-free income limit is a significant relief for the middle class, putting more money in the hands of consumers. This boost is expected to drive overall consumption, benefiting essential categories, including health and wellness products."

The combination of policy measures aimed at increasing disposable income, coupled with targeted agricultural investments and MSME support, is expected to catalyse a revival in consumer spending.

This, in turn, could lead to a resurgence in FMCG advertising expenditures as companies seek to capitalise on improved market sentiment and enhanced consumer purchasing power in the coming quarters.