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FMCG cos up adspends to cash in on resurgent growth

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Aarati Krishnan

Chennai, Nov. 8

THE advertising and promotional expenses for most FMCG companies grew ahead of their sales in the July-September quarter yet another sign of a buoyant outlook for FMCG sales.

Hindustan Lever ramped up adspend by 22 per cent lastquarter, even as its sales grew at a slower 14 per cent.

The company upped its adspend despite pressure from rising prices of chemical inputs that cut into profit growth. A chunk of the advertising spend flowed into new products and brand extensions, which Lever used to keep brand recall high.

Companies such as Dabur India, Godrej Consumer, Marico Industries and Colgate-Palmolive India also reported hefty 40 per cent-plus increases in adspend, while sales expanded at a much more sedate pace.

Adspends zoomed as companies tried to capture resurgent growth rates in categories such as cosmetics, hair care and foods through new media campaigns for their old brands, as well as product launches and brand extensions. For some such as Godrej Consumer and Marico, softening input prices helped the trend, as additional cash flows were promptly ploughed into the advertising budget.

Most companies seemed unmindful of the impact that higher adspend had on the quarter's profit growth. They believed the investments in brand building would show up over the long term.

"We are not necessarily concerned about percentage margins. We tend to invest margin improvements on advertising and promotion to drive sales growth," said Mr Adi Godrej in a conference call for analysts hosted by Godrej Consumer Products to unveil its quarterly numbers.

He expects the trend of rising adspends to continue and predicts that Godrej may spend 25 per cent more on advertising than what it did last year.

Gillette India was the sole exception to the trend. After reporting a surge in advertising expenses the preceding quarter, its ad budget declined sharply in the last one.

(This article was published in the Business Line print edition dated November 9, 2005)
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