Tag: Anita Kotwani

Mumbai: In March this year, India completed a year of double-digit wholesale price inflation (WPI inflation). This is the sixth occasion when inflation has remained over 10 per cent for a year or longer, and it came more than a quarter of a century after the last such episode — between March 1994 and May 1995.

In an exclusive interaction with IndianTelevision.com, Carat India CEO Anita Kotwani noted that inflation is already impacting FMCG which is the broadcast industry’s highest ad spender. She offers her take on the impact of inflation noting that right now ad spend patterns are unlikely to be impacted and the market is recovering from Covid-19. But she warns that if the price of commodities significantly goes up, then that could impact consumption negatively. And ad spends are the easiest to cut back on when commodity prices rise. She offers the example of domestic aviation cutting back on TV ad spends in a significant manner so far this year. On a more positive note, she sheds light on the resilience of TV as an ad medium.

Edited excerpts:

There is talk about high inflation. How is this impacting companies especially FMCG?

High inflation is likely to bite into the FMCG sector’s volume growth in 2022. Retail inflation in India rose to a seven-month high from 6.01 per cent in January, breaching the upper tolerance level. The rise was mainly on account of high food inflation, which jumped to a 14-month high of 5.43 per cent, along with a high base.

A majority of FMCG companies have already reported a decline in volume growth in the third quarter of FY22. At this juncture, FMCG firms face the dilemma of choosing between margins and volumes. However, the analysts believe that protecting the margins will further impact volumes as consumers will hold back consumption.

A recent Nielson IQ report suggests that demand in the rural segment has taken a hit, with volume growth declining by 2.9 per cent. Inflation in the price of fertiliser and diesel has impacted the disposable income of the farmers, thus, impacting the consumption in the rural regions.

Some of the recent reports also suggest that consumers may have to pay more for their daily essential items. Since the FMCG companies are mulling over another round of price hikes, to offset the impact of an unprecedented level of inflation in commodity prices such as wheat, palm oil and packaging materials. A 10-15 per cent hike is expected across industries. The market is volatile as of now, therefore, brands will consider multiple factors before finalising the incremental in the price for their product.

Do you see clients’ ad spending getting impacted in the coming quarters as consumer sentiment turns negative and spending slows down?

Currently, the negative sentiments are not very strong and things are still volatile. Ad spends are likely to get impacted if consumption reduces. However, the impact on consumption will be determined by the increase in the cost of the product. Yes, the essentials are getting a bit expensive but that is largely due to the increased fuel cost led by the Russia-Ukraine conflict. Apart from that, the market has been steadily recovering from Covid and the advertiser spend patterns are unlikely to see any impact. Only if the price of commodities significantly goes up, then that could impact consumption negatively.

Which are the sectors that you see coming under stress due to inflation?

As per the Consumer Price Index (CPI) of March 2022, India stood at an inflation rate of 6.95 per cent.

Amidst the hardening of fuel prices, India’s wholesale price-based inflation quickened to 14.55 percent in March from 13.11 percent in February. Retail inflation for March has also climbed to 6.95 per cent, a 17-month high. According to the country’s CPI-based inflation report, the spike in prices was led by food items.

A continuous rise in fuel prices since March 22 has not been completely captured in the latest data, suggesting that inflation may remain elevated in the coming months. A surge in crude oil prices to a 14-year high has resulted in broad price pressures on Indian households.

Among food items, the index for oil and fats recorded the largest sequential price hike, by 5.3 per cent in March. This may raise pressure on the government to make edible oils cheaper.

The worst affected sectors include food (+1.4 percent over February), clothing and footwear (+0.9 percent over February), and fuel and light (+0.9 percent over February).

Do you see urban and rural India both being equally affected?

Since the beginning of 2021, inflation has started to see a gap between urban and rural geographies. For rural consumers, their basket has a higher weightage on food and essentials. Whereas, for urban consumers, the non-food items dominate their shopping baskets as well. Recreation (malls/cinemas) also impact urban consumers more than rural.

While the inflation gap between urban and rural audiences is always going to remain, rural is also likely to see an impact in consumption due to increased prices of fertilisers and diesel. This impacts the disposable income of people in the rural region.

The people who are most affected by rising inflation are the final consumers of goods. The prices of goods and services are constantly rising. However, the salaries and income of consumers do not rise proportionately. Hence, there is a lag leading to goods and services becoming less affordable to the final consumers. The CPI inflation witnessed significant and sustained moderation during 2012-13 to 2018-19, before rising thereafter.

Rural and urban inflation exhibited a similar trend; the only difference witnessed was that urban inflation started rising from 2018 to 2019.

Moreover, the annual average urban inflation which was ruling below rural inflation till 2017-18, moved above it during 2018-19 and 2019-20 (Chart 1a). Food and non-food inflation contributed to the divergence between urban and rural inflation (Chart 1b).

The consumer food price inflation for rural areas was 3.94 per cent in March 2021. It went up to 8.04 per cent in March 2022. Similarly, the CPI for rural India has also gone up to 7.66 per cent in 2022, from 4.61 per cent in March 2021.

The rural food inflation in March has also registered a steep hike in comparison to February 2022. It has gone up to 8.04 per cent in March, from 5.81 per cent in February.

The Consumer food price inflation for India as a whole, including rural and urban, has gone up to 7.68 per cent in March 2022, from 4.87 per cent in March 2021. Given this understanding, yes, inflation will impact rural and urban consumers equally.

What does the media industry need to do to prepare for growth potentially not being as smooth?

Ad spends are the first and the easiest way to cut costs during times of high commodity prices. It is already evident. Hit by high aviation fuel prices, domestic airlines in the country have cut television advertising by as much as 27 per cent , during the first five months of the year.

When companies try to reduce the ‘extra’ spending, the packages provided by marketers for consolidated marketing become way more lucrative for the brands concerned.
It is imperative for brands to understand that the focus of cost-cutting should be on reducing wastages and not reducing activity that can generate future sales or build a brand.

When a brand is in its growth phase, a reduction in ad spends is unadvisable, even during times of inflation. If a brand is sensitive to media ad spends, which consequently drives movement in business impact, then they too should not cut ad costs. This education to brands by media agencies and partners is imperative.

360-degree media campaigns are the most lucrative campaigns. They combine the most effective and efficient mediums that drive business impact for the brand and further boost media outcomes to the best possible, depending on the category.

Exploring newer advertising options like addressable TV, geo-fencing on digital, digital OOH and interactive print is not only more efficient but far much more sharp-targeted to the audience, avoiding spillage and minimizing costs.

Is there a likelihood of revising the projected ad spend growth of  Rs 82,500 crore?

As an industry we are keeping a close watch on how the media spends are progressing, advertisers and agencies have come to terms that things need to normalise despite rising in covid cases, we will have to co-exist with the virus and continue business as usual. We are hopeful that the situation will not deteriorate, and growth projections if needed will be upward only.

It is a bit unclear right now if the projection for the ad spends will get changed. There has to be a situation as major as the 2020 Covid crisis for the ad spend projections to change significantly.

Will print be the first medium to suffer if clients cut back on spends? What is your take?

In a world wherein all media inputs are determined by ROI, print is the low-hanging fruit. It always witnesses cuts whenever there are budget cuts. A lot of marketing mix modeling (MMM studies) show that for a lot of FMCG brands, print has the lowest ROI, and hence print is always under the scanner.

Dentsu’s ad forecast report mentioned TV being the most resilient. What is the reason for this?

Linear television remains to be the most popular and resilient media in India with a 40 per cent share of spend. Linear television ad volumes continued to post a healthy growth starting H2 2021, as marketers leveraged the reach and power of TV to raise the profile of their brands.

We have seen this in the past as well. In 2021, the TV spends were fully recovered and since TV is still the highest reach building media, brands must leverage TV for building equity and for the movement in top-funnel metrics. While there has been a shift in content viewing with some audiences moving from TV to OTTs and demand for OTT advertising is rising, the impact on TV spends is minimal.

On TV which are the top five properties for an advertiser?

The properties are bucketed under different genres and are listed below:

⦁ Cricket – IPL & CWC
⦁ Dance Reality Shows (“Dance India Dance,” “Dance+”)
⦁ Singing Reality Shows (“Indian Idol,” “SaReGaMaPa”)
⦁ Unscripted Shows (“Bigg Boss,” “Fear Factor”)
⦁ Fictions/Scripted Shows (“Anupama,” “Imli,” “KumKum Bhagya”)

Will smaller genres like music continue to find the going difficult?

Over the last couple of years, there has been a drop in the viewership of the music genre. A major reason is the movement of audiences from music to news and film genres, especially post Covid. Additionally, music listeners who also like to watch music videos have moved to YouTube to watch the videos of their choice. While the viewership for smaller genres will continue to remain low, relevant brands can still look at these genres for the right targeting. Brands targeting youth and females can look at this genre to build frequency.