Rural demand, good monsoon expectations drive FMCG sector recovery; set to boost ad spends this year

During Zee Entertainment Enterprises’ Q4 FY24 earnings call on Friday, its MD and CEO Punit Goenka said that the company’s ad revenue is witnessing a healthy increase on the back of Fast Moving Consumer Goods (FMCG) sector’s recovery. He said the sector has benefitted with the rural sentiments witnessing an uptick.

“The green shoots that we had noticed over the previous quarters have grown stronger on the back of potential recovery across sectors, particularly FMCG. This, coupled with the expectation of a good monsoon should continue to drive the momentum in the financial year 2025,” he said.

The FMCG recovery has spelt good tidings for the media as for a good part of FY24, the ad spending environment remained soft due to a weak pace of recovery in consumption demand for FMCG companies, especially driven by the rural demand slowdown, along with weak spending sentiments among the new age companies.

Zee's advertising revenue grew from Rs 1,005.8 crore in Q4 FY23 to Rs 1,110.2 crore in Q4 FY24. 

“However, post-festive season, some green shoots emerged, led by FMCG players starting to inch up their ad spending. We are pleased to note that the ad spending on GECs has continued to gradually pick up in Q4 FY '24,” said Rohit Gupta, chief financial officer (CFO), Zee, during the earnings call. 

According to a dentsu report, the advertising industry in the country reached a market size of Rs 93,166 crore and the FMCG category held the largest share, contributing Rs 31,428 crore to the total AdEx of the year. The category spends 47% of its media budget on television and digital respectively.

Most FMCG companies had curbed their ad spends in FY24 and significantly ramped up their advertising investments during the October-December quarter to make the most of the festive season and sporting events like the Asia Cup and the ICC Men’s Cricket World Cup. For example, Dabur spent Rs 204 crore in Q1 FY 24, 216.5 crore in Q2, Rs 244.54 crore in Q3 and Rs 183.65 crore in Q4.

Top players such as Hindustan Unilever (34.49%), Dabur (36.13%), Colgate Palmolive India (20.20%), P&G (14%), Marico (11.82%), Godrej Consumer Products ( 24.47%), recorded a double-digit spike in advertising and promotional expenditure for the October-December quarter, year on year. 

Ashish Bhasin, founder, The Bhasin Consulting Group, says FMCG companies have struggled over the past few quarters, primarily due to weaker-than-expected rural demand. However, recent investor calls from major companies suggest a recovery in rural areas is beginning. 

“The previous harvest was successful, and with a favourable monsoon anticipated, rural consumers have more money due to direct bank transfers and government schemes. These factors indicate early signs of a rural demand pickup,” he says.

Bhasin says if the monsoon is favourable, this recovery should accelerate, potentially completing the rural turnaround. “Given that over 60% of India's population depends on agriculture, which in turn relies heavily on the monsoon, its timely arrival is crucial. While urban demand has already rebounded, the anticipated rural recovery and a good monsoon bode well for the FMCG sector,” he says.

Krishnarao Buddha, senior category head, Parle Products, says rural demand has been improving, particularly in the October-December and January-March quarters. As normal monsoon is expected in July-September rural growth is expected to be boosted further. 

“We observed a slight uptick as the impact of El Niño receded by May. With better disposable income, rural consumers are spending more. The April-June and July-September quarters will likely confirm increased growth from rural markets compared to urban areas,” he says.

Buddha says the growth rates were sluggish last year for FMCG and other industries. 

“Typically, when growth rates taper, spending increases. Throughout last year, there were more promotions, including additional weight, value, or volume offers, and intensified advertising. Consequently, FMCG players increased their spending in the last quarter to boost brand awareness and create brand pull during slow periods, relying heavily on sales promotions,” he says.

However, he’s optimistic about FY25, with the FMCG industry set for better growth after two years of slow or no growth. Parle has also increased its spending by 18-20% this quarter compared to last year. In the first quarter of FY25, it heavily advertised during the IPL on both linear and digital media.

FMCG’s recovery led to Zee’s healthy increase in advertising revenue, both on a quarter-on-quarter basis and on a year-on-year basis.

“Our revenue outlook looks promising based on FMCG spending green shoots, expectation of normal monsoon and rural recovery,” Goenka said during the earnings call. 

Bhasin says while television remains the largest medium for FMCG, digital is rapidly gaining market share. The number of Indians with internet access is increasing, with an estimated 200 million more expected online in the next two to three years. 

“As internet reach equals television, FMCG companies will focus more on digital to reach their vast consumer base. Although TV will remain the preferred medium for years, digital growth will be significant, especially with new internet users from tier 2, tier 3 towns, and rural areas, largely driven by mobile devices,” he shares.