Marketing spend to continue, but big increases unlikely: Sudhir Sitapati, GCPL

Sudhir Sitapati, the MD and CEO of Godrej Consumer Products Limited (GCPL), anticipates a recovery in rural consumption by Diwali due to a good Monsoon and believes that the upcoming budget will offer a stimulus to rural growth. 

“The monsoons seem good this time. So, I am quite optimistic about rural revival. For the last 2-3 years, I have not been sure, but I think by Diwali we will see some good rural growth,” Sitapati said in Mumbai on Friday, on the sidelines of the launch of the new molecule of his mosquito repellent brand-Goodnight. 

Notably, India has witnessed nearly a muted growth in consumption, particularly in rural areas, over the last few quarters due to economic constraints, joblessness and inflation among others. 

On marketing spends

Since you are optimistic about the growth in the coming quarters, how is it going to reflect on your marketing spends? Sudhir Sitapati responds, “Over the last 2-3 years as a company, we have increased our marketing spends. When I joined the company, our benchmark of marketing spends was much lower than what an FMCG company should be spending. We believe we are roughly at the benchmark now.” 

“Now, if we find opportunities, we will spend, but we will not see the kind of increases we have seen in percentage terms,” he stated. 

Notably, FMCG firms usually spend 10 percent of their revenue into marketing, which is considered as a benchmark. However, most companies have reduced their marketing spends over the past couple of years. On average, top FMCG players are spending 6-8 percent of their revenue on marketing and advertising. 

Notably, one of the first things that Sudhir Sitapati did when he joined as the MD and CEO of Godrej Consumer Products (GCPL) three years ago was to increase the company's ad spends. The company spent close to Rs 1,000 cr on advertising in FY24, nearly 47 percent up compared to a year ago.  

“But I hope our business grows. One other thing is we have been lucky that our volume growth has been reasonably good despite a tough macro situation. In the current scenario, if we can get 300-400 bps of volume growth, we will be very happy. The volume growth today is 2-4 percent and we are spending 6-8 percent. If the volume grows to 6-8 percent, we can go to 10-12 percent. That's all. That's how we work.” 

On budget expectations

On his expectations for the upcoming Union budget, which is slated to be tabled on July 23, Sitapati stated, “I expect the budget to address the whole aspect of rural development. It needs a stimulus. I hope they address this through PM Kisan or Universal Basic Income, as we need to support a large number of people who do not contribute much to GDP but contribute significantly in other ways. We need to stimulate growth there, especially in terms of discretionary spending.”

I believe the government has been providing stimulus for some time, and I expect they will provide more. However, I strongly feel that a targeted stimulus aimed at revitalizing consumption is crucial in this budget. This issue has been highlighted by numerous signals, and it needs to be addressed.

On growing economic divide 

On growing economic divide in the country, Sitapati said, “The rich are spending on highly discretionary products, while the poor can't even make choices in some areas. If you don't have income growth and there is inflation, you will cut down on discretionary spending. If income growth is well ahead of inflation, you will spend on discretionary items.”

Discussing his argument further, he noted, “When you look at the bottom of the pyramid, household insecticide is non-discretionary, so I am not that worried about it. But there are other categories that are discretionary, such as hair color. We see that pattern: at the top of the pyramid, the top 20% of India, who holds 50% of the GDP, are experiencing a boom in discretionary spending. The next 80% are under stress, which even government data suggests. Consumption growth is 4% while GDP growth is 8%, indicating this disparity.”

He further explained, "Consumption and GDP growth must align. You can’t have such a big gap. I’m confident the government will take measures to spur domestic consumption."

Right now, innovation is happening at the top of the pyramid because the bottom is not supporting it. It's cyclical and keeps changing. Once the market supports the bottom of the pyramid, we will see more innovation there, particularly in personal care, he shared. 

When poorer people grow their income, FMCG as a basket goes up much faster than for richer people. Richer people spend their money elsewhere. So, rural areas grow at 1.5 times compared to urban areas in the FMCG segment. Actually, rural areas have to grow faster than urban areas given the disparity in income. Even if that doesn't happen, if they grow at the same rate, FMCG will have to grow faster in rural areas. And that is what has been the case for the last 20-25 years, Sitapati explained. 

While the talks of an urban slowdown have also begun, Sitapati has a different point of view on the matter. “Actually, the slowdown is less to do with urban and rural and more to do with lower income. So the organized sector is fine. The unorganized sector in rural and urban areas are both facing constraints. We are basically seeing the bottom of the pyramid issue.”