The advertising industry is staring at a business loss of around Rs 2,000 crore in the year's best quarter as demonetization takes a toll on consumer demand.
Industry experts said that companies in consumption sectors have significantly cut advertising spends for November and December after reduced offtake of their products.
Ashish Bhasin, chairman & CEO - South Asia, Dentsu Aegis Network, told DNA Money that there is a definite and immediate impact on the market for advertising.
"The October to December quarter is typically the highest advertised quarter. Almost 35-40% of the entire year's business comes from this quarter. The Indian ad industry market is estimated to be Rs 50,000 crore and 40%, or Rs 20,000 crore, gets spent in this quarter. Now half of that, which is Rs 10,000 crore worth of business is unaffected as half of the quarter had passed. It is the balance Rs 10,000 crore worth of business that will be impacted by 15% to 20%. So the hit will be between Rs 1,500 crore and Rs 2,000 crore worth of advertising business loss in this quarter."
Publicis Media and IPG Mediabrands did not respond to queries on this topic.
Experts said while things look very positive in the medium to long term because the economy will improve, business will be pressured in the short term.
While the impact is across media platforms, above-the-line (ATL), or print, TV radio and outdoor spends have taken a bigger hit than below the line (BTL), or promotional activity, spends. Comparatively, digital ad spends have seen a marginal decline.
"Several sectors like FMCG, durables, auto, real estate, jewellery, etc, have been majorly impacted for different reasons. Real estate and jewellery sectors have been impacted because they tend to have a high cash element. For FMCGs, the impact is due to cash and change crunch. So there will be short-term pain," said Bhasin, adding that some sectors which are gaining such as e-wallets, digital payment platforms, etc, are increasing their spends.
While Nestle and Mondelez India did not offer a comment, Sunil Duggal, CEO, Dabur India, confirmed the cut in ad spends. "We have, in the short-term, cut back significantly on ATL spends, which we would resume perhaps in the early part of December," said Duggal, adding that their advertising and promotions (A&P) spend otherwise continues as before.
Industry sources said Dabur has corrected advertising spends for November by almost 50%.
Varun Berry, MD, Britannia Industries said, "We could offer discounts, advertise, etc, but the customers are not going to buy because of the cash crunch situation. Accordingly, we will not be doing high-decibel advertising. As demand is under pressure, marketing will be a little subdued as well," said Berry.
A Hindustan Unilever Ltd spokesperson said, "As a policy, we do not comment on market speculation. It is pertinent to clarify that we continue to invest behind our brands to drive business growth. Our A&P investments are always planned dynamically to ensure that they are relevant to the market and consumer context."
In terms of how long this scenario will last, Bhasin said that defining short-term is difficult at present. “The entire demonetization impact is not related to better cash dispensing situation at ATMs and / or cash related issues alone. The entire distribution chain and back-end need to be re-synchronised as a result of which there will be a carryover impact that will last for a quarter at least.
“Now whether this pain lasts for two weeks more, one month more or a quarter or two more is anybody's guess. The fact, however, remains that it is going to have a short-term impact and is not limited to a few days or weeks but will definitely extend to a quarter or so,” said Bhasin, adding that with cash gradually coming back into the system, things are expected to get better.
On what are consumer companies like Britannia are doing on the demand revival possibilities January 2017 onwards, Berry said that it will be difficult to say anything at this stage as there are too many variables to look into.
“I really don't know which way it's going to go. We will be tracking all of these (variables) on a daily basis to understand what needs to be done to generate demand in the market. We will definitely work on creating excitement in the market and generate demand once the overall consumption environment situation starts improving,” said Berry.