Adspend: The winnowing begins
As Covid-19 hits the economy, companies are already withdrawing planned spending on advertising and marketing campaigns, a signal that the ad industry will be hard hit
Covid-19 is starting to hit the local ad industry. Small or boutique agencies are concerned that the three-week lockdown will force them to shut up shop.
The FM is aware of at least six small agencies that have already had discussions with staff and clients to that effect. Says one owner: "If our clients are not panicking, they are certainly worried and are asking us to put a hold on jobs."
Another says: "There is no doubt that my business will be affected. While we still have a pipeline of work right now, I expect that to start slowing down in the next fortnight, particularly if the lockdown is extended."
These concerns are reinforced by a new survey from the World Advertising Research Centre (WARC), which says that by the end of June the ad industry is likely to feel the full effects of the looming global recession.
However, says the centre, brands in the fast-moving consumer goods (FMCG) sector are better positioned, so locally this would give some comfort to advertising and media agencies that have retailers such as Shoprite and Pick n Pay on their books.
The WARC says the 2007/2008 financial crisis removed $60.5bn from the advertising market, with all media apart from online search recording declines in investment. The market took eight years to recover from this shock after accounting for inflation and currency fluctuations.
Says James McDonald, managing editor at WARC Data and author of the research: "The current downturn may not hit FMCG as hard as other product sectors, but it is likely to be consequential in terms of changing consumer purchasing behaviour."
According to the WARC, during the last advertising recession in 2009, advertising investment among the food and drink sector fell at a far softer rate than the wider industry. The FMCG ad market was worth $97.2bn in 2019, a 15.6% share of global advertising spend.
According to the global Interactive Advertising Bureau, 24% of brands have paused all ad spend for the second quarter. Planned digital ad spend is down 38% and spend on traditional channels is down 43% in March and April. A recent survey of 2,200 marketers by Marketing Week also revealed that the majority of brands have postponed ad-spending decisions.
Robert Grace, head of strategy at M&C Saatchi Abel, warns of a rough ride ahead for all agencies, no matter what size. "Often in a crisis brands cut back marketing spend — unfortunately succumbing to short-termism — something that isn’t new, but will be more pronounced."
Grace says businesses with existing cracks are likely to see them turn into "gaping" holes. "We’re even seeing the big global networks pulling back significantly, with hiring freezes and salary reductions. Ultimately how you get through this will largely come back to the fundamentals of your business: absolute clarity on what value your bring, being an indispensable partner to your clients, building strong teams who are motivated and equipped to deliver, and robust cash flow."
Grace says brands need to rethink the way they communicate. "They need to move from inspirational and sentimental platitudes and match this with action. In other words, give an indication of what they are actually doing to help consumers through the crisis, and most importantly it has to be authentic and not seen as a marketing opportunity."
He adds that this might be a time for some brands to hit the pause button and themselves "go into quarantine". "By that I don’t mean stop. Take this time to refine or develop new strategies and innovations so that when we’re through this you’re ready to go to market with impact. That day will come."
Grace says brands and agencies need to think about life beyond the virus and the lockdown. "We think there will three consumer responses. A period of release — having been constrained both physically and mentally, a desperate need to experience things that have been missed; a period of reset and looking at how to pick up the pieces of one’s life across family, social circles and work; and a period of renewal, where people rethink where and what they do with their time and money."