Rising audiences and investment in ecommerce to drive 7% annual growth in FMCG digital adspend
- Out-of-home to bounce back from COVID-19 slump with 9% annual growth
- Total FMCG adspend to exceed 2019 levels of spending in 2023
- China leads digital transformation with 71% of FMCG budgets spent digitally
Zenith forecasts that fast-moving consumer goods (FMCG) food and drink brands will increase their ad expenditure on digital channels by 7% a year to 2023, according to its Business Intelligence – FMCG Food and Drink report, published today. That’s well ahead of the 4% annual growth forecasts for FMCG adspend as a whole in the 12 markets included in this report*.
FMCG brands still rely heavily on traditional TV, spending 39% of their budgets on television advertising in 2020, compared to 24% 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% of their budgets in television, compared to an average of 26%. 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.
FMCG brands are therefore following audiences to digital channels. Zenith forecasts that FMCG digital adspend will increase from US$12.3bn in 2020 to US$14.9bn in 2023, and that its market share will rise from 46% to 49%. 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.
“FMCG brands need a new comprehensive approach to reach-based planning,” said Ben Lukawski, Global Chief Strategy Officer, Zenith. “That means combining TV, paid advertising in online video, virtual placement in SVOD platforms and perhaps even a presence in gaming, using first-party and second-party data to prevent duplication and optimise incremental reach.”
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 9% a year from 2020 to 2023, while its market share rises from 6.1% to 7.0%, slightly ahead of its pre-pandemic share of 6.8% in 2019.
FMCG adspend to track total market growth as it recovers from 11% slump in 2020
Ad expenditure by FMCG brands fell more sharply than the ad market as a whole in 2020, shrinking by 10.7% to US$26.7bn. 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.
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 6% 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.
In Australia, according to a national ZenPoll carried out last month**, while 29% of Australians started doing more online grocery shopping as a result of the pandemic, 21% say they will continue to do so even when the pandemic is over. Zenith Australia’s Head of Strategic Insights, Kim Xavier, said: “As restrictions have been eased or removed, the convenience of the online experience is what has kept many new converts online. So balancing the benefits of the in-store experience with the convenience of online will be a challenge for retailers.”
Overall, the ZenPoll found there is still a strong preference for in-store grocery shopping among 74% of Australians, versus 24% who prefer to do their groceries online. However, as supermarket retailers are forced to be more digitally advanced to adapt to the ups and downs of Covid restrictions, many are investing heavily in their eCommerce and click and collect services.
On digital adspend, Vikki Pearce, Head of Digital, Zenith Melbourne, said: “The online nature of these services is increasing supermarket retailers’ focus on digital media investment in what has otherwise been a softening market. And FMCG brands are following suit – particularly over-indexing in their online video spend as they strive to keep top of mind and capture share of wallet not only in the growing eCommerce opportunity.”
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% annual growth in FMCG adspend between 2020 and 2023, reaching US$30.3bn in 2023. At this point it will have fully recovered from the pandemic-induced drop in adspend, exceeding 2019 levels of spending by US$0.5bn.
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% 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% of their budgets on digital advertising, compared to 46% across all 12 markets. This can include 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.
*The 12 markets included in this report are Australia, Canada, China, France, Germany, India, Italy, Russia, Spain, Switzerland, the UK and the US, which between them account for 73% of total global adspend. FMCG food and drink includes all packaged foods and soft drinks.
**Zenith Australia GenPoll, carried out March 4th to 8th 2021. The online survey talked to a total of n=1,023 Australians and is nationally representative by age, gender and region.
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