Will regulatory change impact FMCG cos? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Will regulatory change impact FMCG cos?

Sep 28, 2013

FMCG goods being consumed on a daily-basis, a strong recall value guarantees the success of a product. This recall value is generated through advertisements and promotional activities at the point of sale. Therefore advertisement & promotional spends form a major expense for FMCG companies. With rising competition and increased product launches, this expense has risen in the past one year. Companies such as Godrej Consumer Products have seen a steep rise in their ad-spends. The company, in the last one year, has revamped its Cinthol soap brand and launched a number of innovative offerings in hair care and household insecticides. This in turn has led to higher brand investments pushing up the company's ad-spends in the past one year.

Rising ad-spends of FMCG cos
Company name Ad-spends to sales ratio (%)
  2011-12 2012-13
Procter & Gamble Hygiene 10.6 16.9
GlaxoSmithKline Consumer 16.3 16.1
Godrej Consumer Products 9.2 15
Dabur 12.4 13.6
Marico 11.2 13
HUL 12.1 12.8
Britannia 7.6 8.6
Colgate 8.2 8.1
Nestle 4.4 5
ITC 2.7 2.7

In the world of advertising, television is the dominant medium with 42% share in overall advertisement pie. This is followed by newspaper having a 39% share (Source: Group M estimates). The balance 19% is shared by media such as outdoor & retail, digital, radio, magazine and cinema. Thus television is unarguably the most effective medium for brand endorsements.

In a recent regulatory change by Telecom Regulatory Authority of India (TRAI), the advertisement time on television will be regulated to twelve minutes per hour and will come into effect on 1st October 2013. While this may cheer television viewers, channel broadcasters will have to face the brunt. Thus channel broadcasters are likely to raise ad-rates to compensate for lost revenues. This is likely to push up costs of FMCG companies as they feature among the top ten advertisers (Source: IMRB).

To conclude

FMCG companies are already witnessing rising ad-spends to support new product launches in a competitive market scenario. The new regulations limiting the broadcast time of advertisements on television is expected to raise ad-tariffs and further add to the cost burden of FMCG companies.

Moreover after a series of price-hikes taken earlier, FMCG companies do not have the flexibility to raise prices further particularly with discretionary spending slowing down. Therefore profitability of FMCG companies is expected to come under pressure, going ahead.


Equitymaster requests your view! Post a comment on "Will regulatory change impact FMCG cos?". Click here!

  

More Views on News

SHEELA FOAM LTD Share Price Down by 5%; BSE FMCG Index Down 0.4% (Market Updates)

Sep 24, 2020 | Updated on Sep 24, 2020

SHEELA FOAM LTD share price is trading down by 5% and its current market price is Rs 1,400. The BSE FMCG is down by 0.4%. The top gainers in the BSE FMCG Index are GSK CONSUMER (up 5.1%) and COLGATE (up 1.7%). The top losers is SHEELA FOAM LTD (down 5.0%).

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE FMCG


Sep 24, 2020 (Close)

MARKET STATS