The launch of several new brands and brand variants by FMCG majors in the first quarter of 2004-05 pushed up their adspend by 25-30 per cent at a time when profit margins continue to slide.
This sharp upturn comes after a period of 12-18 months during which many large companies decided to prune their advertising and promotion costs by nearly 10-15 per cent.
Media planners and industry experts however cautioned that the higher adspends may not be sustained for the rest of the year.
"FMCG adspends are increasingly becoming cyclical. In Q1 it was driven by some launches. But I'm not sure if FMCG firms will continue to invest heavily in brand building given the current sluggishness in sales," said CVL Srinivas, managing director, Maxus, a media buying firm.
The last quarter also witnessed the price war in detergents and shampoo segment, which forced companies to communicate their new price points.
While announcing the Q1 results HLL chairman MS Banga said that the 30 per cent or nearly Rs 60 crore (Rs 600 million) increase in A&P budget was directed mostly towards media spends for laundry and personal care products.
"For about two months, all FMCG firms had the urge to scream about their lower pricing. It was not brand building but just a short-term propaganda," said Sandeep Vij, president (corporate media solutions), OMS.
FMCG adspends account for nearly a third or Rs 3,000 crore (Rs 30 billion) of the Rs 9,000 crore (Rs 90 billion) advertising industry.
Besides HLL, Marico, Gillette India, Dabur and Godrej Consumer Care were some of the other firms with significantly greater adspends. "We had two major launches in Saffola Gold and Silk 'n' Shine, a haircare product plus we invested more on above-the-line communications for our other core brands during the quarter. But the spending will not be as high in the coming months," said Saugata Gupta, head (marketing) Marico Industries.
The company spent an estimated Rs 22 crore (Rs 220 million) on ads -- a 45 per cent increase over Q1 last year. Gillette India which was a major advertiser in the recently concluded Asia Cup cricket matches, upped its spending by 54 per cent.
Zubair Ahmed, CMD, Gillette said, "A product like Vector Plus which is targeted at converting large number of double edged blades to razors in even semi-urban areas, needed greater ad support for penetration."
"I wish the FMCG companies would continue to spend the way they did last quarter. But I do not see it as an established trend."Simply because the profits are so low that they can't afford the high expenditure in the current scenario. But certainly there is a growing realisation among FMCG firms that their sudden shift of faith from above-the-line to below-the-line promotions was somewhat misplaced," said Sam Balsara, CMD, Madison Communications.