Coca-Cola slams brakes on ad spend: ‘There is limited effectiveness to brand marketing’
The Coca-Cola Company is looking to cushion the Covid-19-led decline of its bars and restaurants business by reducing marketing costs globally, and, in some markets, coming “off-air” entirely in Q2 2020.
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The company reported global volumes were down by 25% in the first quarter of 2020. This was driven primarily by a substantial decline in its away-from-home business, which comprises trade orders from bars, restaurants, movie theaters, sports stadiums and on-the-go retail such as convenience stores.
James Quincey, Coca-Cola’s chairman and chief executive, noted this was partially offset in the US by a rise in drive-thru and carryout orders, as well as e-commerce and grocery stockpiling in some developed markets.
However, with lockdown halting out-of-home events and minimizing grocery trips for the foreseeable future, the company now predicts its second quarter to be “the most severely impacted” of the financial year.
Coca-Cola has thus cut brand marketing – partially to reduce costs and partially because it is skeptical of return on marketing investment at this time.
“We're being ... mindful about the right level of brand marketing and new product launches given the consumer mindset across market,” Quincey told investors yesterday (21 April). “We've developed and determined that in this initial phase there is limited effectiveness to broad-based brand marketing.
“With this in mind, we've reduced our direct consumer communication we'll pause sizable marketing campaigns through the early stages of the crisis and reengage when the timing is right. These plans will vary from market to market with our earliest reengagement focusing on the recovery in China.”
He added: “Staying close to our consumers in a relevant way is a key guiding principle, and staying disciplined to demand an appropriate ROI is a close second.”
John Murphy, the company’s chief financial officer, confirmed that in its quest to “really stay close to the consumer in a relevant way”, Coca-Cola had made the decision come “off-air” in “many markets”.
He explained the brand is implementing this Q2 shutdown in order to give its various markets more flexibility with marketing strategies and budgets later in the year, dependent on when and how each country reopens for business and events.
“We have had a number of communications announcing that we will take a pause for now while we focus our efforts on our communities and on other priorities and that we'll be back later in the year,” he said, alluding to the “millions of dollars of planned marketing spend” that Coca-Cola says it has donated to pay for the personal protective equipment (PPE) and beverages for healthcare workers.
Despite the company’s skepticism over brand marketing during coronavirus, it is making a concerted effort to enhance its presence on the shelf. The company has “redeployed” its ground sales reps and trained them in merchandising.
Coca-Cola hopes this will result in “increased share of displays of stock on the floor”, aided by a “ruthless” prioritization of core products and key brands to “help customers simplify their supply chains.
“We're also taking this opportunity to reshape our innovation pipeline to eliminate a longer tail of smaller projects and allocate resources to fewer, larger, more scalable and more relevant solutions for this environment,” added Quincey.
The company’s decision to halt brand marketing is in stark contrast to the strategy of Procter & Gamble, one of the world’s largest advertisers. The CPG business is planning to increase spending on advertising during the coronavirus lockdown period in order to “maintain mental … availability to the greatest extent possible”.
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