Domino Effect: Packaged Goods Woes Spreading To Ad, Media Firms
August 23 2017 - 9:45AM
Dow Jones News
By Saabira Chaudhuri
The long-simmering pressure facing the world's consumer goods
giants is now ricocheting more widely, hitting advertising firms
and the media companies dependent on them.
WPP PLC, the world's biggest advertising holding firm by sales,
said a sharp pullback among these core advertisers sent revenue in
the first half sharply lower. Investors sold down WPP shares
heavily and some European media firms also suffered early Wednesday
on worries that ad buying could dry up further.
The world's biggest makers of packaged goods, including Procter
& Gamble Co., Unilever PLC, Kraft Heinz Co. and Nestlé SA, have
all struggled with a host of headwinds. Changing consumer tastes
are favoring healthier, fresher options for food makers. New, often
smaller, local upstarts are competing for sales of everything from
shaving cream to ice cream. Low inflation in many parts of the
world, until just recently, has kept them from raising prices to
make up for slowing volumes.
The industry--in many cases encouraged by activist
investors--has responded by ratcheting back hard on costs. The
penny-pinching is hitting advertising budgets hard.
Unilever's ad spending as a ratio to sales--a metric that
measures marketing against the ups and down of actual revenue--fell
by 1.3 percentage points in the first half of 2017, compared with
the previous six months, according to RBC. Eight of Europe's 10
biggest consumer-goods firms lowered their ratio of marketing to
sales in the period, averaging a drop of just over half a
percentage point.
It isn't just cost-cutting. Packaged foods makers and
personal-care and household-goods giants are facing competition
from new upstart brands, many of which have used social media and
online "influencers" to target consumers. Some big companies have
tried to follow suit, shifting their own advertising focus to
include these often cheaper approaches.
The strategies have also made it more difficult to justify
big-budget, multimedia campaigns--the sort of projects that made
Madison Ave. what it is today--to boost flagging sales. The
ad-spending falloff could be "recognition that throwing money at
marketing isn't the panacea it was," said RBC analyst James
Edwardes Jones.
Unilever earlier this year said it planned to cut the number of
ads it created by 30% and reduce the number of creative agencies it
works with by half. Like its peers, the Anglo Dutch maker of Dove
soap and Hellmann's mayonnaise has been turning to YouTube stars
and beauty bloggers to seed its products, diverting some money from
traditional advertising channels.
Investors and analysts are divided on whether the cuts in
spending are a response to a new reality or a short-term attempt to
lift profit, which could ultimately dilute big brands. At least one
activist investor calling for change in the sector thinks cutting
back on ads is the wrong approach.
Last month, Nelson Peltz's Trian Fund Management, now a big
holder of P&G stock, criticized management for " reducing
advertising, specifically digital, a tactic we believe will damage
the value of the company's brands if continued in the long
term."
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
August 23, 2017 09:30 ET (13:30 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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