Sky-rocketing spends

Adspend thrice employee costs

Input savings, fight for turf drive adspend

Profit growth sacrificed for brand-building

Hindustan Unilever’s (HUL) advertising expenses simply galloped in the December quarter, even as both its sales and net profits grew at a modest pace. To put it in context, the sum of Rs 633 crore that HUL set aside towards advertising and promoting its brands was three times what it spent on its employees (Rs 212 crore) and nearly equal to the operating profit (Rs 692 crore) it generated for this quarter.

The reasons why the FMCG giant’s adspend sky-rocketed could be two-fold. One, sluggish volume growth and market share losses to smaller rivals in some categories seem to have prompted the company to splurge on brand-building efforts lately. Two, savings on raw material costs due to the decline in commodity prices (from the highs of last year) have also freed up cash which HUL has chosen to deploy on advertising and promotions.


HUL’s advertising and promotional spends for the latest December quarter were up 66 per cent compared to the same period last year. While the exact break-up of these spends between advertisements and below-the-line activities are not known, HUL went into an overdrive to rev up volume growth this quarter through initiatives such as price cuts on its detergent brands, the launch of a new Close-Up variant, the re-launch of Lux soap and advertisements for its premium Pond’s and Dove skin and hair care ranges.

Upward bound

HUL often cautions investors not to read too much into its quarterly adspend numbers as they can be quite lumpy, varying with the level of new launch and promotional activity in each period. However, it is clear that HUL’s advertising spends have been upward bound for some time now.

It goes without saying that HUL’s absolute spends on advertising and promotion are the largest within the FMCG space. Over the past year, for instance, the company single-handedly spent more on advertising than the next five listed FMCG companies (ranked by sales) put together. However, what is worth noting is that HUL has also been carving out a larger portion of its sizeable sales towards adspend in recent years. For the nine months ended December 2009 for instance, HUL expended about 13.3 per cent of its net sales on advertising and promotions. That is a much higher proportion than the 10-10.5 per cent that was set aside in the three years to 2008.

That HUL has made a conscious decision to put greater firepower behind its brands through advertising, is clear from the fact that it sacrificed profit growth to expand its ad budget. With its sales growth at a sedate 4.5 per cent for the quarter, curbing ad-spend would have been one way to deliver reasonable profit growth this quarter. Had the company maintained its proportion of adspend to sales at the levels of last year, for instance, its operating profits may have jumped nearly 35 per cent (other expenses remaining the same) for the latest quarter, instead of the 2 per cent reported.