Growing digital channel adoption and e-commerce investment are driving 7% annual growth in digital ad spend in the FMCG sector

  • Out-of-home advertising will rebound from the slump caused by COVID-19, with annual growth of 9%
  • Total FMCG ad spend in 2023 will exceed 2019 levels
  • China leads in digital transformation, allocating 71% of FMCG spend to digital channels

According to the Business Intelligence - FMCG Food and Drink report published today, media agency Zenith forecasts that fast-moving consumer goods (FMCG) brands will increase their digital ad spend by 7% a year through 2023. That is higher than the forecast 4% growth in overall FMCG ad spend across the 12 markets covered in the report.*

TV is losing ground, but FMCG still relies on it

FMCG brands' TV ad spend still relies heavily on traditional linear television. By spending 39% of their 2020 ad budgets on this channel, compared with 24% for the average brand, the FMCG category is cautious about running video ads in non-standard channels such as OTT (over-the-top) television.

Excluding China, where digital advertising is already the main form of commercial communication in the FMCG sector, FMCG brands allocate 52% of their budgets to TV advertising, compared with an average of 26%. Their main goal is to maximise brand awareness and reach so they are visible as close as possible to the moment of purchase for as many consumers as possible. This is something TV has so far excelled at, but its declining reach - especially among young people - is making it increasingly less effective.

FMCG digital spend will rise to $14.9bn

As a result, FMCG brands are following their audiences and shifting part of their budgets to digital. Zenith forecasts that FMCG digital ad spend will rise from $12.3bn in 2020 to $14.9bn in 2023, and its market share will grow from 46% to 49%. After the pandemic, which acted as a catalyst for e-commerce growth in the FMCG sector in 2020, brands will seek support and expansion of their e-commerce capabilities, directing consumers to DTC initiatives or retail partnerships. The biggest challenge, however, will be using digital technology to effectively replace television - that is, building brand awareness at scale while managing frequency. The growing popularity of subscription video on demand (SVOD), which lets viewers avoid direct advertising, will make this even harder, as will the withdrawal of cookies.

"FMCG brands need a new, holistic, reach-based approach to planning," said Ben Lukawski, Global Chief Strategy Officer, Zenith. "That means combining TV, paid online video advertising, virtual placement on SVOD platforms and perhaps even in-game presence, and using first-party and second-party data to prevent duplication and optimise incremental reach."

Out-of-home advertising as an exception in the crisis

Out-of-home advertising is an exception to the shrinking reach of traditional media. As market activity returns to normal after the slump caused by COVID-19, the spread of digital displays will make it even more effective to reach consumers with targeted and relevant ads near the point of sale. FMCG out-of-home advertising is expected to grow 9% a year between 2020 and 2023, with its market share rising from 6.1% to 7.0%, slightly ahead of its pre-pandemic share of 6.8% in 2019.

FMCG ad spend will follow the wider market's growth, emerging from an 11% decline in 2020

FMCG spend fell more sharply in 2020 than the overall advertising market, declining 10.7% to $26.7bn. This was not, however, due to a lack of demand. On the contrary, demand rose as people stopped eating in restaurants, cafes and bars and shifted consumption to the home. As a result, FMCG companies faced the challenge of increasing production while supply chains were disrupted and using limited distribution to get their products onto shop shelves or into consumers' homes. Many FMCG companies therefore scaled back promotional activity for products they could not deliver to consumers fast enough to meet demand, and instead invested in distribution infrastructure, especially e-commerce operations and partnerships.

Zenith forecasts that FMCG ad spend growth between 2021 and 2023 will be close to the growth of the overall market. A rebound is almost inevitable in 2021 given the comparison with the sharp decline in 2020, particularly in the second quarter, although it will still be 6% below 2019 levels. FMCG companies face uncertainty over how quickly consumers will return to shops and how much their behaviour has been changed during the pandemic. But now that FMCG e-commerce infrastructure is being put in place, brands will need to increase advertising investment to support that process. Zenith forecasts 4.4% annual growth in FMCG ad spend between 2020 and 2023, reaching $30.3bn in 2023. At that point, the pandemic-driven fall in ad spend will have fully recovered, exceeding the 2019 figure by $0.5bn.

India leads ad spend growth, China leads digital transformation

According to media agency Zenith, India will be the fastest-growing market over the next three years, with FMCG ad spend rising 14% a year. This will be driven by booming consumer demand alongside rapid income growth, combined with catch-up expansion of an underdeveloped advertising market: advertising accounts for just 0.3% of India's GDP, less than half the global average of 0.7%. All the other markets covered in the report are expected to grow steadily at 2% to 5% a year.

FMCG digital advertising: forecasts and investment

China stands out as the market where brands have most quickly embraced e-commerce and digital advertising. In 2020, Chinese FMCG brands allocated 71% of their budgets to digital advertising, compared with 46% across all 12 markets. In this case, these brands focus on online video, which has large and broad reach and is open to commercial partnerships. This may mean advertising in programmes available online or special livestreams hosted by influencers, where viewers can directly buy the items being demonstrated. They also routinely advertise on e-commerce platforms to drive sales along the purchase path. According to Zenith, Chinese FMCG brands spent 35% of their total budgets on online video and 13% on e-commerce advertising in 2020.

"Ecommerce will be the key battleground for FMCG brand growth in the years ahead," said Jonathan Barnard, Head of Forecasting, Zenith. "Western brands should follow China in seeking best practice in using digital communication to drive FMCG e-commerce sales."

 

 

*The 12 markets covered in the report are Australia, Canada, China, France, Germany, India, Italy, Russia, Spain, Switzerland, the UK and the US, which together account for 73% of total global ad spend. The FMCG food and drink category covers all packaged food and soft drinks.

 

About Zenith:

Zenith is an ROI agency, combining data, technology and top specialists to uncover new opportunities, solve complex challenges and grow clients' businesses. Zenith is part of Publicis Media, one of four solution hubs within Publicis Groupe. The agency operates in 95 countries and employs more than 5,000 specialists in communications and media planning, content and performance marketing, optimisation, and data and analytics. Zenith's team in Poland comprises 170 specialists working for several dozen leading global and Polish brands.

 

 

Summary

According to a report by agency Zenith, FMCG brands will increase digital ad spend by 7% a year through 2023, reaching $14.9bn. That is more than the 4% growth forecast for the overall market. Even so, the category still relies on traditional television for 39% of its spend, but declining reach among younger audiences is forcing budgets to shift to digital.

The challenge will be using digital technology effectively to build brand awareness, especially in the face of the growing popularity of SVOD and the withdrawal of cookies. Interestingly, in China digital advertising already accounts for 71% of FMCG spend, and brands there are learning to use livestreams and online video to drive sales. According to experts, Western markets should follow Chinese practices in e-commerce.