HUL is spending more on advertising but it is not leading to higher revenues  

Hindustan Unilever, the king of the fast-moving consumer goods (FMCG) market, spent approximately Rs1,660 crore on advertisements last year, 40% of which was spent on the television and print media. But its revenue growth has been far lower. The company’s ad spend grew by an average 16% over the past five quarters, while average revenue growth for the same period was 10%. For the September 2009 quarter, ad spend jumped 41% but revenue growth was just 4%.

 

In the first half of FY10, the total industry advertising spend was Rs7,452 crore, 16% lower compared to the same period in FY09. But HUL increased its advertising cost by 41% in Q2FY10 compared to the year-ago period. HUL needs to spend money on a plethora of new launches such as Dove body wash and shampoo, the re-launched Sunsilk range, Clinic All Clear, Axe Deodorant, and the re-launch of Lux in variants like Strawberry and Peach. The company is also spending on outdoor advertising for its water-purifier product, Pureit. However, the higher ad spend is not translating into higher revenues.

 

It is interesting to note that Emami, another FMCG player, increased its ad spend by just 1% over the past five quarters but recorded an average revenue growth of 16%. Also, the average growth in ad spend of Godrej Consumer Products over the past five quarters was 23% while its average revenue growth for the same period was 43%.

 

Reacting to this trend, H K Press, vice chairman, Godrej Consumer Products Ltd, told Moneylife Digital, “By and large, all companies are upping their advertising expenditures because this year the costs of goods (raw materials) has gone down. So people have more money to spend on advertisements. Secondly, when everybody is spending more and trying to maintain what you call ‘share of voice’, everybody has to spend more and there is always a desire to improve the top line.” But, HUL is obviously not getting it right in its effort to spend more and earn more.