Home Food India leads FMCG adspend growth, but China leads digital transformation: Report

India leads FMCG adspend growth, but China leads digital transformation: Report

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Leading market intelligence company Zenith today released Business Intelligence – FMCG Food and Drink, the fifth of Zenith’s Business Intelligence reports, which analyse the advertising, business and consumer behaviour trends shaping different categories.

FMCG companies had a tough time in 2020, but unlike those in most categories their problem was not a sharp drop in demand. Instead, they were faced with the challenge of retooling their production and distribution networks to get their products to consumers who needed them more than ever, but whose shopping habits were being upended by the spread of COVID-19. In particular, FMCG companies had to embrace ecommerce in a way they had never previously committed to, the report states.

Some of the key insights from the report include:

  • FMCG ecommerce lags far behind the market but will be key to growth
  • FMCG adspend will grow 4%-5% a year to 2023, supporting expanded ecommerce activities
  • To maintain reach, brands need to balance spending across TV, out-of-home and digital channels
  • FMCG adspend will expand much faster in India than in other markets, with 14% annual growth
  • Chinese FMCG brands demonstrate how to effectively drive growth through ecommerce

Adspend versus Digital Transformation

Zenith forecasts that India will be the fastest-growing market by some distance over the next three years, with FMCG adspend expanding by 14% a year. It will benefit from blossoming consumer demand as disposable incomes rise rapidly, coupled with the catch-up expansion of the underdeveloped ad market: advertising accounts for only 0.3% of India’s GDP, less than half of the global average of 0.7%. All of the other markets are predicted to grow steadily between 2% and 5% a year.

China stands out as the market where brands have most rapidly embraced ecommerce and digital advertising, and FMCG brands should look to China for best practice in driving ecommerce sales. In 2020, Chinese FMCG brands spent 71% of their budgets on digital advertising, compared to 46% across all 12 markets. Here, FMCG brands focus on online video, which has a high and broad reach, and is open to commercial partnerships. This can mean advertising in online shows, or special livestreams by influencers, in which viewers can directly purchase the items being demonstrated. FMCG brands also routinely advertise on ecommerce platforms to drive sales at the point of purchase. Chinese FMCG brands spent 35% of their total budgets on online video and 13% on ecommerce advertising in 2020.

The rise of ecommerce and the continued migration of audiences to digital media are challenging FMCG brands to blend digital advertising effectively with advertising in traditional media – they can no longer rely exclusively on television., says the report With their strong presence in online video and routine use of advertising on ecommerce platforms, Chinese FMCG brands are blazing the trail that Western brands will follow over the next few years.

Zenith forecasts that the recovery of FMCG adspend will roughly track the market as a whole in 2021-2023. A bounce- back is almost inevitable in 2021 given
the comparison with the sharp drop-off in 2020, particularly during Q2, though it will still be 6% below the pre-pandemic levels of 2019. FMCG companies face uncertainty over how quickly consumers will return to shops, and how much their behaviours have been permanently affected by the pandemic. However, now that FMCG ecommerce infrastructure is being put in place, brands will need to increase their investment in advertising to support it. Zenith forecasts 4.4% annual growth in FMCG adspend between 2020 and 2023, reaching US$30.3bn by the end of the period.

FMCG brands are following audiences to digital channels, with 2.7% annual growth forecast from 2019 to 2023, well ahead of the 0.4% annual growth for FMCG spending as a whole. After the pandemic gave FMCG ecommerce its urgent stimulus in 2020, brands will look to support and expand their ecommerce capabilities, channelling consumers to DTC operations or retail partnerships – see the Category Growth section for more details. But the big challenge will lie in using digital to replace television effectively – creating large-scale brand awareness while managing frequency. The rise of Subscription Video on Demand (SVOD), which locks away high-value audiences from direct advertising, will make this even harder, as will the end of third-party cookies.