Post-demonitisation, it’s boom to doom for adspends…

21 Nov,2016

 

By Indrani Sen

 

The media and advertising industry in India began 2016 on a high note. The Pitch Madison Advertising Report gave a forecast of 16.8% growth in 2016 with an increase of Rs 7300 crores plus in business. The total size of the market was supposed to cross the Rs 50,000 crores mark with a comfortable margin. After high growth in last two years – 2014 (16.5%) and 2015 (17.6%) – it seemed the boomtime in media will continue in 2016. The mid-year review by Pitch Madison dampened the spirit of growth by lowering the overall growth rate from 16.8% to 13.2%.  A slowdown in TV advertising in the first half of the current year mainly due to reduced advertising spend by e-commerce sector, downgraded the original projection for TV and consequently for the entire advertising industry. Is the recent demonetisation move by the government changing the ‘boomtime’ to ‘doomtime’ for media and ad industry?

 

On November 18, an article in Brand Equity reported that the demonetisation will adversely affect the profits of industries. The article quoted from a report ‘Demonetisation: Feedback from the Ground Zero’ by domestic brokerage firm Motilal Oswal Securities, “with a low circulation of money, household consumption has taken a hit and caused business across sectors to decline in the range of 30-80% within the first five days of the Demonetisation move”. (http://brandequity.economictimes.indiatimes.com/ news/business-of-brands/india-incs earnings-to-get-affected-post-demonetisation-move-report/55488383) The article citied many other observations from the report including “We believe autos, FMCG, retail, consumer durables, mid-caps, cement, telecom and NBFCs could see earnings downgrades for 2016-17″. Traditionally, when profit of any organisation is adversely affected, advertising expenditure bears the first brunt of it.

 

It appears that the high consumer spends during the festive season covering the first month of the third quarter, would not be enough to offset the effects of demonetisation on consumer spends in the next two months. In the last two weeks, not only cash circulation has slowed down in the market, but domestic consumption is also being largely controlled and moderated by thrifty housewives. There are jokes circulating in the social media about how in one stroke, Modiji succeeded in emptying the hidden coffers of housewives. Only time will tell if Modiji has been able to cure this age old habit of saving cash secretly by Indian housewives or are they already planning to replenish their savings.

 

The media has been reporting about the hardships faced by the common people in the cities and the perils of farmers in the rural areas. Politicians and opinion leaders are debating the pros and cons of the move in Parliament and social media. Industry leaders have been cautious with their comments on demonetisation. Brand Equity in the article citied above, quoted again from the ‘Demonetisation: Feedback from the Ground Zero’ report: “Observing positive long-term implications, it said corporates broadly agree that a combination of Demonetisation and GST will aid the shift from the unorganised to the organised segment in several consumer-oriented categories.” However, the process of this shift from unorganised sector to organised sector is going to be slow and painful in an economy used to cash based transactions with its roots in agriculture.

 

For the country’s FMCG market, traditional trade or local grocers account for around 70% of overall sales and rural areas account for 35% of overall sales. Nielsen, who conducts a retail audit in both urban and rural areas, has done a quick check on the impact of demonetisation and has reported that smalltowns and rural areas have been hit harder than the large towns and metros as the distributors and wholesalers are not reaching out to service these markets due to the present cash crunch.  It is wellknown that the network of wholesalers and retailers used to operate mostly with cash in both urban and rural market. It is difficult to predict how quickly the whole system will be able to adopt cashless measures of transaction leading to revival of FMCG sales.

 

The more organised retail sector has also been hit by demonetisation with people spending only on buying necessities and hoarding the limited cash available for emergency. Apparently, there has been a shift from large packs to small packs in many categories. Non-essential items and luxury brands have hardly moved from shelves during the last two weeks. Automobiles industry has also been talking about an expected dip in sales with the two-wheeler companies being more vocal. Sale of smartphones has slowed down affecting the growth of mobile broadband users. There was a spurt of advertising from e-commerce industry during the festive season with a long tail which is still visible on some channels. Currently, there are contradictory comments on the effect of demonetisation on e-commerce industry. Brand Equity wrote on November 17 that Flipcart’s Sachin Bansal believes that demonetisation has hit online business. (http://brandequity.economictimes.indiatimes.com/news/ business-of-brands/flipkarts-sachin-bansal-believes-demonetisation-has-hit-online-biz/55469052). On the other hand Facebbok’s Umang Bedi said “Demonetisation is a great step for Indian e-commerce market” at the Global Mobile Internet Conference 2016.

 

The four categories which account for 70% of total TV advertising are FMCG, retail, telecom and e-commerce with FMCG having the highest share. TV accounts for around 40% of the total advertising pie and is a quick barometer of the spending mood of the advertising industry. We already know courtesy IBF that TV schedules are being cancelled by advertisers and agencies. IBF cannot expect advertisers to continue with TV advertising if the consumers are not purchasing and will have to negotiate for a solution. http://www.exchange4media.com/advertising/ibf-issues-letter-to-advertisers-to-honour-deals-after-several-cancellations-following-demonetisation_66718.html.

 

To sum up, demonetisation has affected advertising as consumers are not in a mood to spend. The ‘boomtime’ in the beginning of the year is changing to ‘doomtime’ in the last two months of the year for media and advertising industry. If we go by the fiscal year, it is unlikely that industry will experience a turnaround in the last quarter of 2016-17. Sudden and forced reduction of economic activity in market place in one quarter affects consumer behaviour which may not recover immediately in the next quarter even when the constraints are removed.

 

Indrani Sen is a media services veteran, having worked with JWT, later Mindshare and then with Emami. In recent years, she is an independent consultant and academic. She is Adjunct Professor in charge of the Media Management programme at the Symbiosis Institute of Media & Communication, Pune. The views expressed here are her own.

 

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