These companies told investors in their March quarter earnings call that A&P investment helps to drive demand and also grow newer categories. Hence, they will increase spending on advertising.
Fast-moving consumer goods (FMCG) companies had resorted to cost management, including A&P spending cuts in the last few years to improve their margins amid major inflationary pressure and a slowdown in demand.
Margin indicates the percentage profit a business makes on a sale after factoring the expenses.
Hindustan Unilever CEO Sanjiv Mehta told analysts that as margins come back, the company would do two things – correct the price value equation (of packs) and increase the spend in A&P. He said A&P was 8.4% of sales last fiscal, which was the lowest in several years. It was 12.2% of sales pre-Covid.
One of the country’s largest advertisers, HUL chief financial officer Ritesh Tiwari said in the March quarter, the company had improved gross margin sequentially by 120 basis points (bps) and increased A&P investments by 80 bps. A basis point is 0.01 percentage point.
“We will continue to focus on building back gross margins and stepping up (A&P) investments in coming quarters as well,” Tiwari said.Dabur India CEO Mohit Malhotra said A&P spends were up by 12.5% during the fourth quarter despite high inflation. “We have started investing behind our brands with higher media spends to drive demand, particularly in India. As a result, the media spends in the standalone business increased by 15.7%,” he told ET.
The recovery of A&P and marketing spends is across consumer-facing companies and not just FMCG, at a time when demand is projected to improve, led by a moderation in inflation. All the leading listed consumer companies have benefited from reduction in input costs, which has helped them to improve margins in January-March period both on a quarterly and annual basis.
Tata Consumer Products CEO Sunil D’Souza told investors that the intent is not to cut advertising spend and drive the bottomline.
Saugata Gupta, managing director of Marico, said A&P investment will continue to be a “key thrust for our growth as we believe that long-term brand building certainly is a much better choice over short-term profitability gains”. While Marico passed on the benefits of lower input cost to the consumer, it said it has maintained A&P spends, which grew 8% on a four-year CAGR basis to drive long-term growth and brand equity.
Department store chain Shoppers Stop said its costs increased by 13% last quarter and the biggest jump was in investments in marketing, which grew by 41% both online and offline.
