• by Sarah Mahoney , Staff Writer @mahoney_sarah, October 11, 2024

New research from eMarketer projects that digital ad spending in the consumer package goods sector will moderate in the coming two years, but still outpace other industries. Toiletries, cosmetics and food are the categories with the highest spend, with additional growth coming from beverages.

The market research company estimates that CPG brands will spend nearly $50 billion on digital advertising this year. That translates to a 16.5% share of the $302.77 billion digital advertising market, its highest share ever.

That robust spending showed considerable growth, up 16.6% from last year, making it the third fastest-growing of the industries tracked.

The report predicts a more sedate pace of 6.1% growth in 2025 and 5.8% in 2026.

“CPG advertisers favor display over search and mobile over non mobile more heavily than other industries,” the report notes, with CPG brands spending 57.9% of digital ad budgets on display ads and 69.3% on mobile.

Meanwhile, toiletries and cosmetics still represent the most significant chunk of CPG ad investments, at 35%. But faster growth is stemming from beverages. In nonalcoholic drinks, eMarketer projects digital ad spending will have grown 27.4% by the end of this year, with alcoholic drinks seeing a 22.1% increase in ad spending. Toiletries and cosmetics will grow spending by 19.2%.

The shifts in spending come as CPG companies are scrambling to find their way back to growth. For decades, they were investment darlings, routinely reporting hefty sales gains each year as they moved into markets around the world.

From 1980 through 2012, the sector generated impressively reliable increases, with average annual revenue growth of 9% and predictably healthy profits, according to McKinsey & Co.'s recent analysis. Then slower population growth, grocery consolidation, and widespread consumer changes ended all that:  Industry revenue grew just 2% annually from 2012 through 2019.

The pandemic intensified the pressure, as did inflation, with consumers spending more to buy less. “In 2023, Americans spent 10% more on groceries but bought 4% fewer items,” McKinsey notes.

To return to growth, CPG companies must accelerate the pace of change, particularly in the way they advertise. Digital has fragmented consumer preferences, “allowing smaller brands to get themselves in front of their bull’s-eye consumers,” the report says. “CPG innovation and marketing functions have responded by evolving, but they need to be revolutionizing. Digital now represents 75% of all advertising spend. But CPG advertising is only 50% digital.”