The promotional spend of cigarette companies has increased by 15-20 per cent ever since the ban on tobacco advertising came into effect on May 1 this year.
Before the ban, the annual cigarette advertising market was estimated to be close to Rs 300 crore with ITC accounting for more than half of the spend. Indications are the companies will have spent around Rs 350 crore in the first 12 months after the ban.
"Mass media is a cheaper medium to advertise, but now we will have to rely solely on point of sales promotion. Reaching out directly to nearly 3 million vendors might increase our promotional spend by around 15-20 per cent," ITC’s head of tobacco business, Kurush Grant, had recently told Business Standard.
The cigarette company’s loss is the vendor’s gain. The country’s 3 million vendors are set to make over Rs 150 crore as they are charging the companies anywhere between Rs 500 and Rs 2,000 for putting up the two six square-feet posters allowed by law.
"Since only two advertisements are allowed, the retailers and the small shops have started to demand a huge premium for space that earlier used to be free of cost," said Surinder Seru, CEO (domestic business), Godfrey Phillips India (GPI).
The advertising ban has also forced cigarette companies like GPI and ITC and tobacco firms like the DS Group to operate at lower retail margins.
"Because of the ban and the stiff competition, GPI is forced to give the retailers a 30 per cent margin in newer markets like Andhra Pradesh which it wants to enter," Seru said.
Even in markets like Haryana and Rajasthan, where GPI’s market share is a healthy 30-40 per cent, the company is forced to operate at commission rates in excess of 20 per cent.
"The distribution and retail network for both cigarette and tobacco products is the same and everybody is fighting for the same space. In the absence of advertisements, there is a clamour in the industry to improve distribution and increase point of sales product push by giving the distributors more incentives," said Ashok Aggarwal, president, DS Group.
The DS Group too is expecting a nearly 30 per cent increase in its advertising and promotional expenditures this financial year to Rs 40 crore from Rs 30 crore last year.
"The cost of advertising will go up significantly in the coming years as more and more retailers become aware of their right and the new opportunity," added Aggarwal.