India will be the fastest-growing market for fast-moving consumer goods (FMCG) food and drink brands' advertising expenditure over the next three years, with ad spend rising 14 per cent per year, according to a report by media agency Zenith, owned by Publicis Groupe.
According to Zenith's Business Intelligence - FMCG Food and Drink report, which covered 12 markets including the US, UK, France and China, all other markets are likely to grow steadily at between 2 per cent and 5 per cent a year.
India will benefit from blossoming consumer demand as disposable incomes rise rapidly, coupled with the catch-up expansion of the underdeveloped ad market, it said, adding that advertising accounts for only 0.3 per cent of India's GDP, less than half of the global average of 0.7 per cent.
It said the FMCG food and drink brands, which include packaged foods and soft drinks brands, will increase their advertising expenditure on digital channels by 7 per cent per year to 2023 and the digital advertising expenditure will rise from $12.3 billion in 2020 to $14.9 billion in 2023, while its market share will rise from 46 per cent to 49 per cent.
"FMCG brands still rely heavily on traditional TV, spending 39 per cent of their budgets on television advertising in 2020, compared to 24 per cent for the average brand. Excluding China, where FMCG brands have already adopted digital advertising as their main form of commercial communication, FMCG brands spent 52 per cent of their budgets in television, compared to an average of 26 per cent," the report said.
However, the declining reach of TV, particularly among the young, is making it a less effective medium, forcing companies to follow audiences to digital channels.
Brands will also look to support and expand their e-commerce capabilities, channeling consumers to DTC (direct-to-consumer) operations or retail partnerships.
Zenith said out-of-home advertising is an exception to the declining reach of traditional media. As traffic returns to normal after the COVID-19 slump, the spread of digital displays will make it even more effective at reaching consumers with targeted and relevant ads near the point of sale.
"FMCG out-of-home advertising is forecast to grow by 9 per cent a year from 2020 to 2023, while its market share rises from 6.1 per cent to 7.0 per cent, slightly ahead of its pre-pandemic share of 6.8 per cent in 2019." the report noted.
Overall, the ad expenditure by FMCG brands fell more sharply than the ad market as a whole in 2020, shrinking by 10.7 per cent to $26.7 billion. This was because companies cut back on promotional activity for products they couldn't get to consumers quickly enough to satisfy demand as they faced the challenge of higher demand with disrupted supply chains amidst the pandemic. Instead of advertising, the companies invested in distribution infrastructure, especially e-commerce operations and partnerships.
"However, now that FMCG e-commerce infrastructure is being put in place, brands will need to increase their investment in advertising to support it," the report said, forecasting a 4.4 per cent annual growth in FMCG ad spend between 2020 and 2023.
Jonathan Barnard, Head of Forecasting at Zenith, said e-commerce will be the key battleground for FMCG brand growth over the coming years. "Western brands should look to China for best practice in using digital communication to drive FMCG e-commerce sales," he added.