Post the tsunami of demonetization, the Pitch Madison Advertising Report 2017 has predicted that the Indian Adex is set to grow by 13.5% and cross Rs 56,152 crore mark in 2017
The Indian Media & Advertising industry was swept by the tsunami of demonetization, dramatically slowing down growth in the last two months of 2016. In 2016, the industry actually grew by 12.5%, as compared to Pitch Madison’s mid-year revised growth projection of 13.2%. In terms of absolute numbers, Adex grew by almost Rs 5,500 crore but narrowly missed crossing the Rs 50,000 crore mark and ended at Rs 49,480 crore, thanks to demonetization. The year 2017 promises to be the year of remonetization, with the market expected to grow 13.5%, adding Rs 6,672 crore to Adex to reach a total size of Rs 56,152 crore.
“Whilst the growth in 2016 was defined by the word ‘tsunami’, we would be positive about 2017 and describe it as ‘buoyant’,” says Sam Balsara, Chairman and Managing Director, Madison World, commenting on the predictions made by the Pitch Madison Advertising Report 2017. “Our bullish view of the Indian economy in general and Adex in particular has to be tempered by the fact that the first four months of 2017 are the recovery phase or the remonetization phase. Therefore, the growth in these four months is expected to be no more than 8%. We see Adex swing into action from May to October 2017, and project a growth rate of 14% for this period. Since Adex degrew in Nov-Dec 2016 by 8%, we expect the growth rate in Nov-Dec 2017 over corresponding months in the previous year to be dramatically high at 24%. The aggregation of these growth rates during these three periods help us arrive at our annual growth forecast of 13.5%, making the Adex cross the Rs 56,000 crore mark. This should make India once again the fastest growing advertising market in the world, for the third consecutive year. Our optimism for good growth in Adex, starting May, comes from high government investment in infrastructure, lower corporate and personal taxes for small and medium companies and the masses, good government support for the poor and consequently the wide scale expectation of yet another year of high GDP growth.”
Demonetization knocked off approximately Rs 1650 crore from Adex. Television de-grew in November-December by as much as 21% compared to last year and lost approximately Rs 850 crore. Print, on the back of demonetization, lost almost Rs 580 crore in terms of absolute numbers. The balance Rs 220 crore was lost in other mediums put together.
Growth of 12.5% came mainly on the back of growth in Digital which grew by 40%+ and now stands at Rs 7315 crore. Digital grew by as much as Rs 2200 crore on the back of Google, Facebook and various OTT platforms. However, it is significant to note that the Indian Advertising market, without Digital, grew by a mere 8.5% in 2016.
FMCG continues to be the most dominant sector and increased its dominance from 28% last year to 32% this year; followed by Auto (10%), then Telecom (8%) and Education (5%). e-commerce that had taken the media market by storm in 2015 contributed only 4% to the total pie in 2016. In fact, investment by the e-commerce category decreased by more than Rs 500 crore across TV + Print + Radio in 2016.
INDUSTRY REACTS TO PITCH MADISON AD REPORT ’17
CEO, Domestic Broadcast Business, Zee Entertainment Enterprises Limited
We would like Television to be at this growth rate of 13%. The past few months have seen a bit more introspection because of which it may be a little less but the market should continue to grow. This is a great time for the organized players and if I were a big brand, I would invest hugely in the next year so as to benefit from the move to GST (Goods and Services Tax). This would be the best year for advertisers to connect with consumers and make their brands grow. Whether it’s tea, laundry or personal wash, big brands should gain share and get more aggressive.
President Revenue, The Times of India Group
This report is definitely looking interesting in the sense that 2016 has been a kind of reset for us. If you take the 2015-16 fiscal, compare and remove the abnormality of the effect of demonetization in this year, the numbers predicted here certainly look possible. And in that sense, I am optimistic and sure that as an industry, we should be able to surpass these numbers. Print has its relevance, and is the best place if you are looking to make an impact. We are also seeing a lot of brands because the bigger size ads are gaining traction.
Business Head, India & SAARC, Godrej Consumer Products Ltd
The figures predicted in the report are achievable because even this year, the industry will be doing around 10% and if I take out the demonetization period, the rest of the 10 months will be pretty normative. Two factors will play – the whole economy should bounce back which will make this kind of investment happen. Secondly, there is a base effect of demonetization that we are sitting on, so these growth figures also have to be looked at from that context. But the numbers look achievable and I was expecting the Digital figures to be even higher. From a Godrej point of view, TV is the most critical, but now Digital is also an important medium.
President & Publisher, Chitralekha Group
The report is showing a buoyant 2017, predicting a 13.5% growth which is good for the industry. We will also see the overall ad expenditure growing beyond Rs 56,000 crore for the first time as per the predictions. But the first four months are very critical and if we start by clocking less than 8% it will be very difficult to achieve the overall 13.5% by the year-end. Print continues to be a dominant force even though the previous year it saw a not so impressive 7% growth, largely due to the impact of demonetization.
Brand Director, P&G
The Adex growth of last year has been very creditable, given the impact of demonetization. I was quite heartened, but also surprised by some specific growth numbers. I didn’t realize that FMCG grew by 32%. I also know it cannot continue to keep growing at the same rate year-on-year. I expected the growth in Digital. TV will continue to grow though Digital will outpace the growth in terms of share of the spending pie. We are poised for a few more years when Digital will keep growing. However, over the years, the reliance on Print might decrease a bit at the expense of Digital.
Vice President-Marketing, Snapdeal
India being one of the top advertisers from the size of the industry perspective was incredibly impressive. For me, it was very heartening to see that Digital is gaining in share of the ad pie. Being in an e-commerce company, it gives me hope that Digital will get clearer to read, easier to understand and more targeted and effective. The more effectively we can target people connected to the Internet, the more efficient it gets for the e-commerce players. When it comes to future growth, I would bet on Digital. There is also big potential in Out-of-Home and TV will continue to be the lead awareness-generating medium.
Chief Corporate Marketing Officer, DB Corp
If you look at what is happening today, language Print will drive double digit numbers circulation and revenue. The markets beyond the metros are driving growth. While 9.5% looks very small, when you separate English and language, that’s when you see the difference, because it is the decline in English Print that is bringing the average down. We were hopeful for such buoyant figures despite demonetization which was a two-month phenomenon. The government is taking so many steps to help its citizens have more money with them, we are already seeing the beginning of an eased out phase. I am quite hopeful for the next year.
Chief Executive Officer, Sakal Media Group
I am fairly happy about the projections. Every year when we do our business planning for the next financial years, we take Sam’s numbers very seriously. His level of assessment is very granular and goes beyond just predicting growth rate for a particular medium. Rather, he goes into categories and looks at client categories that are doing well and tries to look at why they are doing well and how the medium is going to be relevant to them. Print Adex has been down for a while post demonetization. But certain categories are Print-heavy and will continue to do well. Print as a category will start adopting newer, emerging market opportunities and reinvent itself.
COO, ABP News Network Pvt. Ltd
It’s a very realistic report. However, Sam has projected a very decent growth during April, May and October, but since GST is getting implemented from June 1, I see June and July, the period which is usually dull for advertising, seeing a much worse impact this year. If advertising overall goes down, Television advertising will also go down, but news as a genre - because we are not dependent on any one kind of category, or one kind of client - our spread is much more. We deal on a monthly basis with 600 clients, so for us the impact would be less.
Business Head, Digital and Marketing, Bloomberg Quint
It’s looking great. The great thing is that Digital, while it’s not the biggest category and is only 15% of the pie, it’s driving the growth. If you remove Digital, the growth is less than half of what is projected. So even though Digital is the third largest medium, all the incremental growth in the category will come from Digital. What is interesting is to see the change in the search and display mix which are going down and other forms of digital avenues are coming up, social, mobile and content. So the subset of Digital is where the interesting story lies.
VP, Brand & Communication, Lokmat Media
The industry is again looking up, even after the tsunami. So, Print is showing a healthy growth and regional Print will lead the way, we already saw that. And Digital is the future and I agree it should be used in a modest way. I welcome new advertisers in 2017 and am hopeful that India continues to be one of the global trendsetters in the media industry.
I think the overall 13.5% growth estimation is a little high. My expectation was 11-12% actually. But if it is 13.5% it means good for industry overall. However I am not too sure of the overall projection in terms of saying elections and cricket are going to spearhead the growth. The rural demand generation by the govt which is the last point Sam mentioned, sounds the most promising. Digital and Print will be the mediums to watch out for.
META TRENDS THAT MARKETERS NEED TO RECOGNIZE
Speaking at the Pitch Madison Advertising Outlook 2017 launch event, Harish Bhat, Brand Custodian, Tata Sons, makes a case for the trends that will shape the face of global marketing in 2017
Today I’d like to talk about some large trends that are sweeping our world which marketers in India and other parts of the world should bear in mind. As I take you through these trends, I will also talk about some of their implications. Let me start by talking about one big trend that marketers all across the world are facing. The rise and consequences of populism. The big victories of this year, Donald Trump in the US Presidential elections and Boris Johnson and his supporters in Brexit, are different voices of the same populous narrative. The French elections are round the corner and Angela Merkel in Germany is going to fight the election of her life. Also, in the Netherlands, the far-right is already making good progress. In India, we saw demonetization, which is going to bear some good results in the long run. In the short term, a large part of the economy has come under pressure. In India, demonetization has taken a populous narrative of the rich or the non-tax payers being punished, and all the money is being channeled back into middle India.
During the US elections and Brexit, the phrase ‘force through’ was invented which really spoke about the marketing of those elections, not based just on fact but on an appeal to the emotion, an appeal to what people thought is right rather than what may actually and factually have been right. But we need to remember that populism in other countries has had after-effects as well. From a marketer’s point of view, what does populism means? A lot of these populist movements are going to lead to upsurges of nationalistic movements in these countries. People are going to become more nationalistic which can be seen in the utterances of Donald Trump or the people who support Brexit. This means that there is a lot of opportunity for brands to ride the wave for the next few years. Marketers need to keep that in mind.
Secondly, brands which sell outside India need to be watchful of trade barriers coming up because when populist movements are in place, trade barriers will become the order of the day. Thirdly, the reason why people like Donald Trump, Narendra Modi or Boris Johnson succeed is because of the authentic, emotive appeal that they lay out to people. And as marketers, we can learn a lot from them. We can learn from the authentic and direct emotive appeal that these wonderfully popular leaders actually extend to people - very simple in their appeal but at the same time, very authentic and emotive.
‘The Rise of Populism’ is the first big trend and it will remain a trend for the next few years. All of us sitting here in India should recognize that one of the big trends of the next few years is going to be the rebirth of a very different United States of America. I come from a company, Tata Global Beverages, which has brands selling in the USA including Tetley and Eight O’ Clock Coffee. But the first thing that Trump has announced is that he is going to move corporate tax reforms and bring the corporate tax rate down, which will lead a lot of dollars parked outside America by corporates coming back to the country. That’s going to mean a strengthening dollar. He will also be investing in infrastructure which will again mean more jobs in the US which is going to lead to more consumer demand. When you look at the map of the world and compare it to two years back, Western Europe was growing at 2.5%, the USA would have been growing at less than 2%, Asia was at over 6% with China growing at a ferocious 9%-10% pace. India was growing at about 8%-9%. But the map is shifting now. The USA which is worth several trillion dollars is now growing 2.3%, faster than ever. Growth in Europe has slipped from the 2.5% to 1.1%. Growth in Japan is virtually non-existent. Asia is still good at 5.2% but is much lower than the 7-8% that we witnessed a few years ago. The map is shifting in terms of growth of the size of the economy. While India and China will continue to grow rapidly, there is a shift towards the USA and that is going to strengthen their economy, at least in the short term.
The third big trend which will impact marketers in India is the formalization of the Indian economy. We know about the shorter term impacts of the move. But I want to point out a longer-term impact that marketers have to bear in mind in the Indian economy. I have been in the FMCG market in tea, I have been a retailer in Titan that retails jewellery and watches with Tanishq and Titan. All of us who have worked in each of these markets know about the large unorganized sector in India. We, as organized brands, have faced an uneven playing field because a lot of the unorganized sector evades taxes and duties and are therefore able to market their products at a much lower cost. Today, with demonetization coming in and the country heading towards digital payments, and sometime this year GST coming in, while I agree that there will be some short-term disruption as the wholesale trade and the kirana trade learns to cope with the GST, in the longer term it will even the playing field, because it is going to become far more difficult for the unorganized sector to evade taxes. Both GST and digital payments will make people more and more tax-compliant. When Modi launches his next wave of attacks on benaami properties, this will further intensify and the unorganized sector will either have to adapt by doing business in a legal manner or will have to sell out or shut down. In either case, there will be an opportunity that the organized sector can leverage.
The fourth big trend will be about ‘connected everything’. The number of digital devices coming into our worlds over the last several years is huge. So the big trend that is coming up and already manifesting itself in parts of the Western world is the connection of all those devices because consumers will find it very difficult to manage multiple devices. And integrating those devices and connecting them is something that consumers are actively going to start doing. A recent report that I read said that about 40% of all Fortune 500 companies have at least one Internet-of-things project which is actively engaging them within their companies. Wearables are going to be a part of those connected devices. Today, wearables can only tell you the steps that you walk or the calories that you burn, but very soon, by the end of this year or the beginning of the next year, we are going to have wearables that track many other parameters like blood sugar level and blood pressure and actually stream that through the connected devices to remote doctors who can then analyse what you need to do, what food you need to eat. Even this can create remarkable opportunities for marketers in the future. The first four launches of Levi’s this year are all connected devices and I am told that initial results have been very positive. Also, the cost of virtual reality instruments is falling rapidly. Everything that I have read points to virtual reality being the next big digital revolution. Very soon, if you do not have free wi-fi in a place where your consumers are gathering, they will see you as being old and outdated and not belonging to today’s day and age. This is a reality that marketers need to adapt to. Finally, from typing, we are going to move to voice. In a year or two, you will find a lot more voice-enabled devices and that’s how consumers are going to order things.
The fifth big trend is about private superpowers. If I look at social networks and the size of countries, it speaks a certain language. Facebook has 1.7 billion users, WhatsApp is a billion and those are much larger than the populations of the largest populated countries in the world, China and India. This just means that many of these social networks, many of these large digital players are actually immersing populations larger than the populations of countries and are in touch with them every single day. They can actually control what these people read and look at and therefore I look at Google and Facebook as the private superpowers of this world which are going to become very important to marketers. It is also very important to optimally engage with these private superpowers to ensure that we understand what works best on social media and with consumers and not neglect them.
The sixth trend that comes from Denmark is sweeping Europe and it is something we have already seen coming into parts of urban and metropolitan India. The best word to describe it is the Danish word ‘hygge’ or cosiness is the new wellness. It’s a counterpoint to today’s digital culture which wants you to be constantly connected. And the strong counterpoint to the culture is that people want space by themselves, far away from the digital world. This movement can be best exemplified by warm socks or a hot cup of tea, with the smell of cinnamon and cloves. It can also be exemplified by lighting diyas and spending time with light and candles or spending time with family - grandchildren, children, parents sitting together and playing a game or watching a television show. This, I think, is going to become a big trend. Across the world, because of this trend, we have had a situation where the prices of cloves, cardamom and cinnamon have more than tripled over the last 12 months. In Europe, the best selling product this Christmas season was mulled wine which typically feeds into many of these very spaced out but very lazy hygge moments. Can brands leverage this? Of course you can. There is a lot of potential to leverage this through the kind of advertising you do and the kind of products you launch which can feed into these hygge moments at home. Even Indian products like agarbattis and diyas and a whole host of products in that space can really move from an occasional, religious moment to everyday moments with the family.
I also want to talk about the changing millennials. When I was with Titan, I used to market ‘Fastrack’, which was primarily targeted at college-going youth. It’s grown very rapidly. While marketing the brand, we realized that the millennials of five years ago are no longer the same as the millennials of today. We discovered many surprising facts. For instance, many millennials today strongly believe in the need for purpose and are inclined to buy brands that have a purpose. For marketers, however, the challenge lies in how to infuse that purpose into the brand. Unless the millenials see a sense of authentic purpose that your brand is lending itself to, you will be losing many of the younger consumers who would otherwise come into your brand. Many youngsters today take a conscious decision to go out and work with organizations with a purpose, not just corporate organizations but with NGOs which support causes that they believe in. And that’s symptomatic of the kind of consumer you are dealing with when you look at millennials. Today, a lot of millennials don’t watch TV as much as they read or drive.
Whatever TV they watch is on their iPads. How do we reverse that habit and get them to watch TV? One of the best selling products this year in the Christmas season in many parts of the world was writing notebooks bought by young people to keep notes. I didn’t believe when I heard about it, but it is the truth. Millenials today want to shake things up. They see pollution and the air being dirty and the world becoming a worse place to stay in and realize that they have to live here for the next 50-60 years. And there is an anger that is building up. Millennials also feel a sense of entitlement and they want brands to recognize that. They become cynical of brands which try too hard so marketers really have to work out smart methods of getting into their minds. If you want to understand millennials, it’s important to embrace the unexpected.
It is very important for us to be curious about all these seven trends that I have spoken about and understand how we can best leverage them.
REBOOTING THE FMCG INDUSTRY
At the Pitch Madison Advertising Report 2017 launch event, Sunil Kataria, Business Head, India & SAARC, Godrej Consumer Products Limited, points out ways to revive the FMCG category’s growth trajectory
How do we reboot or revive growth? The mantra is, we should never forget that it is a game of brand-building. By and large, you pick any category in India, and find there is huge headroom to grow. For example, let’s take our own category - insecticides - where we are dominant market leaders. The penetration in India is only 50%. Deodorants is a Rs 2,500 crore category here, but the penetration in India is 4%. We face challenges in the industry and in the macro-economic environment, but having headroom to grow is a very important focus to have, because that makes you really choose where you want to put money. Secondly, all studies tell us that Indians, no matter how value-conscious they are, still have a preference for brands. If you put penetration, headroom and these brand preferences together, there is a strong case for brand building.
I want to put forth a case study here though I am not going to reveal the names of the brands. Take Brand A and Brand B, and their corresponding Nielsen data. I picked two categories we play in and have taken the last two years’ data when the industry witnessed recession. So I’m talking of 2014-2016 figures. As per Nielsen, hair colour has grown at the rate of 12.5% which is very good for a recessionary period. The other category is soaps, which in any case doesn’t go beyond 3-4%. It’s growing at around 2.5% according to Nielsen, but I am positive that Nielsen is wrong on this, because most of us would have seen soaps witnessing much more of a slowdown there. But I am going with the data just so that we have a uniform base. The brand I am talking about in hair colour is growing 3.5 times the 12.5% growth of the category, which means that it has grown at 44% CAGR over these past two years. That also means that the brand has doubled its size in two years, and also doubled the number of households where it is used. The brand has persistently spent around 10%-11% in media, they have not cut it down. And the brand’s numeric distribution has grown by 11% over two years, when the industry has remained flat. Why I picked hair colour as a category is because its penetration is low. On the other hand, the second example is of soaps, a category which has 100% penetration. On a growth rate of 2.5%, there is a brand which has grown 3.5 times, which comes to around 8%, which is amazing. The household growth in soaps of this brand is 13%, something that doesn’t happen in this category so easily. They have managed around 8% of consistent spends, because the base of that brand is huge, and have increased the distribution to 5%. So this will make it clear that brand-building is the game that you should not take your eyes off, it is finally about penetration, it is all about spending money. We as a company that lives and breathes innovations, can tell you that over a period of time, innovation does pay for itself.
Thirdly, in India, FMCG cannot thrive without distribution. There is a clear correlation between a brand’s sales growth and distribution. At the end of the day, it’s about accessibility and a game of numeric distribution.
In India, the FMCG reach to coverage ratio for the best of companies is 1:3. In a country of 8.3 million outlets, the best company can claim to reach three million outlets. So the ratio is 1:3 while most of the FMCG companies have 1:4 ratio. This means that the second point is the most important - we all have to invest in direct coverage but it’s a game of indirect reach. And that’s where channel partnerships become very important. It’s an unglamorous part of the relationship, and business, something you must invest in.
Five years down the line, we will be talking very differently. My prediction is that e-commerce will change the way small towns and cities would behave in FMCG category in India. FMCG globally has not taken off through e-commerce in any country. The best case figure is South Korea, where 10% of the business of FMCG comes out of e-commerce. Globally FMCG sale through e-commerce is stuck at around 2-3%. My feeling is India would be 5-7% in 5-6 years from now. The model will be very different in India. It’s still around less than 1.
And the fourth piece, we are a Bharat first country, we cannot forget that 70% of people stay in rural areas. To give you an example of our own category of household insecticide, penetration stands at 50% but the moment I break it into urban-rural, the figures become very starkly different - urban India is 75% and rural is 30%. All categories follow that by and large in India. So, the fact is if you have to drive penetration, you cannot do it without rural India. It is not just about having a rural focus, you have to get immersed in rural.
Another point which I want to make is about something we have been doing internally and something where I have seen a lot of companies make a mistake. When you have rural focus, you end up doing a marketing focus in rural and a sales focus separately. I think rural has to be thought of as one-rural. For example, you can’t say that you are going to increase outlets in UP by 1 lakh and then leave the marketing development of those areas to your national TV advertising. That won’t work. Internally, we call it one rural, which means immersing in rural. Thanks to technology, there are two big media evolving in rural. One is FTA, which we are going to measure now. Thanks to BARC, we are able to measure rural now. FTA is evolving as a new medium and then obviously mobile is huge. New technologies are a very good way to connect with rural.
The third medium which we have started to experiment with in a very small way right now is community radio. Most media agencies don’t even pick this up but the fact is there are 150 community radios operating in India today, and the Government has given a license for 850 already. These are radios which operate within a cluster of 20 villages, the news anchor is somebody from the local village. So we are trying to work on that and it could be the next big rural way. Agencies also need to start picking up on that, because when suddenly 800 community radio channels come up, how will it affect the game? Indians buy brands in rural as well. But the thing is, we have to make two kinds of packs. A lot of us talk about affordable packs. One thing that you miss is portable packs in India. You can make an affordable pack but if they have a high distribution cost in terms of reaching and cannot reach through on auto mode through wholesale, you will not succeed. So your packaging has to be such that it is portable through wholesale. This is a fact that most brand managers miss. They want to make a sexy, great, on the shelf pack. There is nothing wrong with that, but is it portable. And that’s an important piece along with affordable. So this is the FMCG winning formula which we all have been practising - Invest in brand-building, Innovate relentlessly, Improve accessibility and immerse in rural. It’s as simple as that.
We just need to repeat what we have been doing so well over the years. We may have gone off the trajectory a little bit in the last couple of years, but let’s repeat what we did well.