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Rising audiences and investment in ecommerce to drive 7% annual growth in FMCG digital adspend

Out-of-home to bounce back from COVID-19 slump with 9% annual growth.

Zenith forecasts that fast-moving consumer goods (FMCG) food and drink brands will increase their ad expenditure on digital channels by 7% a year to 2023, according to its Business Intelligence – FMCG Food and Drink report, published today. That’s well ahead of the 4% annual growth forecasts for FMCG adspend as a whole in the 12 markets included in this report*.

FMCG brands still rely heavily on traditional TV, spending 39% of their budgets on television advertising in 2020, compared to 24% for the average brand. Excluding China, where FMCG brands have already adopted digital advertising as their main form of commercial communication, FMCG brands spent 52% of their budgets in television, compared to an average of 26%. Their principal goal is to maximise brand awareness and reach so they are front of mind at the point of purchase for as many consumers as possible. This is something that TV has historically excelled at, but its declining reach – particularly among the young – is making it less effective.

FMCG brands are therefore following audiences to digital channels. Zenith forecasts that FMCG digital adspend will increase from US$12.3bn in 2020 to US$14.9bn in 2023, and that its market share will rise from 46% to 49%. After the pandemic gave FMCG ecommerce its urgent stimulus in 2020, brands will look to support and expand their ecommerce capabilities, channelling consumers to DTC operations or retail partnerships. But the big challenge will lie in using digital to replace television effectively – creating large-scale brand awareness while managing frequency. The rise of Subscription Video on Demand (SVOD), which locks away high-value audiences from direct advertising, will make this even harder, as will the end of third-party cookies.

“FMCG brands need a new comprehensive approach to reach-based planning,” said Ben Lukawski, Global Chief Strategy Officer, Zenith. “That means combining TV, paid advertising in online video, virtual placement in SVOD platforms and perhaps even a presence in gaming, using first-party and second-party data to prevent duplication and optimise incremental reach.”

Out-of-home is the exception to the declining reach of traditional media. As traffic returns to normal after the COVID-19 slump, the spread of digital displays will make it even more effective at reaching consumers with targeted and relevant ads near the point of sale. FMCG out-of-home advertising is forecast to grow by 9% a year from 2020 to 2023, while its market share rises from 6.1% to 7.0%, slightly ahead of its pre-pandemic share of 6.8% in 2019.

FMCG adspend to track total market growth as it recovers from 11% slump in 2020

Ad expenditure by FMCG brands fell more sharply than the ad market as a whole in 2020, shrinking by 10.7% to US$26.7bn. This was not because of any shortfall in demand. On the contrary, demand soared as people stopped eating in restaurants, cafes and bars and shifted consumption to the home. Instead, FMCG companies were faced with the challenge of ramping up production while supply chains were disrupted, and using limited available distribution to get their products onto shelves in stores, or to consumers’ homes. Many FMCG companies therefore cut back on promotional activity for products they couldn’t get to consumers quickly enough to satisfy demand, and invested in distribution infrastructure instead, especially ecommerce operations and partnerships.

Zenith forecasts that the recovery of FMCG adspend will roughly track the market as a whole in 2021-2023. A bounce-back is almost inevitable in 2021 given the comparison with the sharp drop-off in 2020, particularly during Q2, though it will still be 6% below 2019 levels. FMCG companies face uncertainty over how quickly consumers will return to shops, and how much their behaviours have been permanently affected by the pandemic. However, now that FMCG ecommerce infrastructure is being put in place, brands will need to increase their investment in advertising to support it. Zenith forecasts 4.4% annual growth in FMCG adspend between 2020 and 2023, reaching US$30.3bn in 2023. At this point it will have fully recovered from the pandemic-induced drop in adspend, exceeding 2019 levels of spending by US$0.5bn.

India leads adspend growth but China leads digital transformation

Zenith forecasts that India will be the fastest-growing market by some distance over the next three years, with FMCG adspend expanding by 14% a year. It will benefit from blossoming consumer demand as disposable incomes rise rapidly, coupled with the catch-up expansion of the underdeveloped ad market: advertising accounts for only 0.3% of India’s GDP, less than half of the global average of 0.7%. All of the other markets in the report are predicted to grow steadily at between 2% and 5% a year.

Jai Lala, CEO, Zenith India said, “FMCG growth will continue to be robust considering various reasons. Firstly, despite the pandemic, it is one category where the demand is constant, if not seen increasing. Secondly, with evolving consumer demand, FMCG continues to see a slate of new product launches and category expansion. Lastly, with the vast population being in Tier 2 and rural areas - it is one untapped potential market where the FMCG brands continue to increase penetration.”

China stands out as the market where brands have most rapidly embraced ecommerce and digital advertising. In 2020, Chinese FMCG brands spent 71% of their budgets on digital advertising, compared to 46% across all 12 markets. Here, these brands focus on online video, which has a high and broad reach, and is open to commercial partnerships. This can mean advertising in online shows, or special livestreams by influencers, in which viewers can directly purchase the items being demonstrated. They also routinely advertise on ecommerce platforms to drive sales at the point of purchase. Chinese FMCG brands spent 35% of their total budgets on online video and 13% on ecommerce advertising in 2020.

“Ecommerce will be the key battleground for FMCG brand growth over the coming years,” said Jonathan Barnard, Head of Forecasting, Zenith. “Western brands should look to China for best practice in using digital communication to drive FMCG ecommerce sales.”

*The 12 markets included in this report are Australia, Canada, China, France, Germany, India, Italy, Russia, Spain, Switzerland, the UK and the US, which between them account for 73% of total global adspend. FMCG food and drink includes all packaged foods and soft drinks.