FMCG ad budgets are safe – for now

Many FMCG companies spent more on advertising during the pandemic and expect to continue do so so over the next 12 months, but as costs increase and inflation bites that could all change. 

Why it matters

Chief executives have noted what happened to Kraft Heinz when it stopped backing its brands, and aren’t about to repeat that mistake, being more likely to cut costs elsewhere – in innovation or product ranges, for example. At some point, however, they may be faced with passing costs on to consumers, at which time decisions on advertising spend will be crucial. 

Context

• The likes of Procter & Gamble (up 12% in the 12 months to June 2021) and Diageo (up 17% in the same period) have increased spending recently; analysts cited in the Financial Times expect Coca-Cola, PepsiCo and Colgate-Palmolive will increase ad budgets over the next 12 months.
• But as the pressures of lockdown lift, more relaxed consumer behaviour will lead to companies in some sectors trimming their budgets (eg Clorox forecast to be down 11%, Kimberly-Clark down 8%).
• Both operational and materials costs are increasing. Advertising costs are also rising as non-FMCG businesses increase their spending post-lockdown, meaning FMCG brands face getting less bang for their buck. 

Key quote

“If you’re going to pass on costs, are you really going to persuade consumers to pay more if your brand is less present? You need to make sure that the consumer’s not shifting down to store brands” – Brian Wieser, GroupM. 

Sourced from Financial Times