Jonathan Barnard is Head of Forecasting, Director of Global Intelligence at Zenith Media.
Here at Zenith we’ve recently started delving into the details of advertising in specific categories, to supplement our regular overviews and forecasts of the total advertising market. These category advertising forecasts form part of our new series of Business Intelligence reports, which also look at the business and consumer trends shaping each category. Our latest report focuses on FMCG food and drink, including all forms of packaged food and soft drinks. Please visit our website here if you’d like to download a copy of the full report.
For this report we looked at FMCG advertising in 12 markets, which account for 73 per cent of total global adspend between them, so the figures are pretty representative of the global market as a whole: Australia, Canada, China, France, Germany, India, Italy, Russia, Spain, Switzerland, the UK and the USA.
We predict that fast-moving consumer good (FMCG) food and drink brands will increase their ad expenditure on digital channels by seven per cent a year from 2020 to 2023. That’s well ahead of the four per cent annual growth forecasts for FMCG adspend as a whole.
FMCG brands still rely heavily on traditional TV, spending 39 per cent of their budgets on television advertising in 2020, compared to 24 per cent for the average brand. Excluding China, where FMCG brands have already adopted digital advertising as their main form of commercial communication, FMCG brands spent 52 per cent of their budgets in television, compared to an average of 26 per cent. Their principal goal is to maximise brand awareness and reach so they are front of mind at the point of purchase for as many consumers as possible. This is something that TV has historically excelled at, but its declining reach – particularly among the young – is making it less effective.
China stands out as the market where brands have most rapidly embraced ecommerce and digital advertising
FMCG brands are therefore following audiences to digital channels. Zenith forecasts that FMCG digital adspend will increase from US$12.3 billion in 2020 to US$14.9 billion in 2023, and that its market share will rise from 46 per cent to 49 per cent. 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. 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.
Out-of-home is the exception to the declining reach of traditional media. As traffic returns to normal after the Covid-19 slump, the spread of digital displays will make it even more effective at reaching consumers with targeted and relevant ads near the point of sale. FMCG out-of-home advertising is forecast to grow by nine per cent a year from 2020 to 2023, while its market share rises from 6.1 per cent to 7.0 per cent, slightly ahead of its pre-pandemic share of 6.8 per cent in 2019.
FMCG adspend to track total market growth as it recovers from 11 per cent slump in 2020
Ad expenditure by FMCG brands fell more sharply than the ad market as a whole in 2020, shrinking by 10.7 per cent to US$26.7 billion. This was not because of any shortfall in demand. On the contrary, demand soared as people stopped eating in restaurants, cafes and bars and shifted consumption to the home. Instead, FMCG companies were faced with the challenge of ramping up production while supply chains were disrupted, and using limited available distribution to get their products onto shelves in stores, or to consumers’ homes. Many FMCG companies therefore cut back on promotional activity for products they couldn’t get to consumers quickly enough to satisfy demand, and invested in distribution infrastructure instead, especially ecommerce operations and partnerships.
Fast-moving consumer good (FMCG) food and drink brands will increase their ad expenditure on digital channels by seven per cent a year from 2020 to 2023
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 six per cent below 2019 levels. 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 per cent annual growth in FMCG adspend between 2020 and 2023, reaching US$30.3 billion in 2023. At this point it will have fully recovered from the pandemic-induced drop in adspend, exceeding 2019 levels of spending by US$0.5 billion.
India leads adspend growth but China leads 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 per cent 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 per cent of India’s GDP, less than half of the global average of 0.7 per cent. All of the other markets in the report are predicted to grow steadily at between two per cent and five per cent a year.
China stands out as the market where brands have most rapidly embraced ecommerce and digital advertising. In 2020, Chinese FMCG brands spent 71 per cent of their budgets on digital advertising, compared to 46 per cent across all 12 markets. Here, these 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. They also routinely advertise on ecommerce platforms to drive sales at the point of purchase. Chinese FMCG brands spent 35 per cent of their total budgets on online video and 13 per cent on ecommerce advertising in 2020.