Advertising ‘recession’ likely, but V-shaped recovery expected: WARC

The probability of an “advertising recession” in the first half of the year is high as brands deal with fallout from the coronavirus crisis, according to a new global report from WARC.

The report notes that the disruption of activity caused by COVID-19 creates an opportunity for brands to build lasting relationships, but stresses that any communications during this time need to be “positive and proactive.”

The report, which specifically analyzes the impact of COVID on the fast moving consumer goods (FMCG) category, says that a deep recession in the short-term is probable. However, it predicts it will likely be “V” shaped, with a quick bounce-back once the immediate crisis is over.

While traditional media vendors such as the U.K.’s ITV and U.S. Olympic broadcaster NBC—as well as out-of-home advertising vendors such as JCDecaux—will be hard hit by the current crisis, WARC notes that pure-play digital vendors like Facebook and Google are also vulnerable to the downturn, since they are the easiest channels for brands to “turn off” during a crisis.

Revenues for pure-play online companies are largely drawn from a long tail of SMEs, the types of businesses that are most exposed during any downturn. This, says WARC, is the reason why Facebook recently offered clients $100 million in advertising credits.

In its analysis of the global recession a decade ago, WARC said that while advertising investment among major FMCG companies declined, it did hold steady as a share of overall revenue.

While revenue among five of the world’s largest FMCG companies fell during the recession a decade ago, only two (P&G and Coca-Cola) opted to cut their advertising investment. “This is interesting to note as today’s downturn is different,” notes study author James McDonald, managing editor of WARC Data. “Consumers are stockpiling food and drink, and this may lead to a short-term boost in sales income.”Screen Shot 2020-03-30 at 4.22.16 PM

However, WARC cautions that brands that opt to spend longer periods “off air” during the crisis could see their overall brand health weakened and market share damaged because of the accompanying reduction in share of voice.

Its analysis of the last recession found that 12.7% of global ad trade (equating to US$60.5 billion) was eliminated as anxious advertisers pulled back on spending. While the market recouped this loss within two years, it took eight years to fully recover when factoring in inflation and currency fluctuations.

The key difference in the decade since the last global recession, it says, is the rise of e-commerce and digital, which have led marketers to drift towards short-term marketing approaches, often at the expense of brand-building.

WARC’s analysis of 19 FMCG product categories found that online display accounts for nearly 50% of total ad spend, with household and domestic brands now allocating about 55% of their total ad budget towards digital/online channels.

Some categories have been slower to shift budget since they aren’t selling directly through digital channels. Soft drinks, for example, continues to invest heavily in traditional media like broadcast and out-of-home, with only about 17% of projected 2020 spend directed towards online. The food category is similarly pre-disposed towards traditional media, with only about 18% of spend directed to digital.

“Brand building is important for food and soft drinks,” says McDonald. “While online spend is rising in line with the wider market, TV spend is still 4.5 and 3.8 times higher, respectively.”

While the current crisis won’t hit the FMCG sector as hard as categories like travel and entertainment, it could play a significant role in permanently changing consumer purchase behaviour.

In a separate report based on analysis in eight Asia Pacific markets plus the U.S. and the U.K., WARC found that 86% of consumers have changed their behaviour as a result of COVID.

This includes everything from avoiding crowded places to improving personal hygiene and shopping for items online. The report says it is “highly likely” that new behaviours and lifestyle norms formed during the outbreak will persist in the longterm.

At least a quarter of consumers in key markets are shopping more online because of COVID, says WARC, with millennials and Gen X the biggest adopters of online shopping. The upshot of this increased e-commerce activity, says WARC, is that online players could become more significant as “gatekeepers” to FMCG shoppers.

“For the big manufacturers, this may increase the importance of DTC or subscription offers,” says WARC. “Consumers are now ‘Living a new normal,’ and crisis-buying habits may become permanent behaviours.”


Chris Powell