UK ad spend sees record decline as ‘grave impact’ of Covid-19 hits

Main media advertising (which includes TV and OOH), also reported a steep decline over the past three months / Grateful Britain

Over the past three months, UK ad budgets have been slashed to their lowest ever level. That’s according to fresh data from the Institute of Practitioners in Advertising (IPA) which lays bare the grave impact of Covid-19 on marketing budgets, financial prospects and employment plans.

The IPA’s latest Bellwether report – which draws data from a panel of around 300 UK marketing professionals from the UK’s top 1000 firms each quarter – has found that UK ad budgets have contracted at the quickest pace since data collection began 20 years ago.

Amid the outbreak of Covid-19 and a subsequent nationwide lockdown, a severe decline in revenues has forced businesses to make a sharp reduction to their marketing spend.

UK media including News UK, ITV and Channel 4 braced themselves for the impact of this at the start of the year, along with the world's biggest ad agencies. Elsewhere, most marketers The Drum has spoken to in the past few months — including Nivea, KFC and Fender — have acknowledged a dip in spend.

However, IPA’s numbers still paint a sobering picture for the UK ad industry, showing what it’s described as the “catastrophic impact” of the current pandemic.

The Drum outlines the key findings, and what they mean, below.

What were the top findings from the IPA’s Q2 Bellwether?

  • The IPA found that a net balance of -50.7% of UK companies slashed their budgets between March and June. The sum was calculated by tallying the percentage of respondents showing an improved revision to their marketing budgets minus those that indicated a fall. Almost 64% of panel members registered a decrease in Q2 budgets, just 13% posted an increase.

  • These figures are particularly shocking because they supersede the Bellwether Report’s previous nadir of -41.7% evidenced in Q4 2008, following the global financial crisis.

  • Bellwether panellists remained pessimistic towards financial prospects in the second quarter of 2020, casting more downbeat assessments on both own-company and industry-wide finances.

  • Sentiment on own-company prospects plunged far deeper into negative territory compared to the first quarter, when the severity of the coronavirus pandemic was only just beginning to become apparent. In the second quarter, precisely two-thirds of survey participants reported a pessimistic outlook for finances against 11.5% who expected an improvement, taking the net balance to -55.1%.

  • This sentiment represented the most severe degree of negativity since the fourth quarter of 2008 when the net balance measured -57.7%.

What marketing disciplines were hit hardest?

  • With coronavirus restrictions prohibiting anything other than small gatherings and causing publishers and brands alike to halt scheduled live events, funding for events marketing saw the sharpest reduction in Q2. A net balance of -76.6% of panellists registered a decline in events budgets, with more than 80% reporting a decrease. Only 3.6% posted a rise.

  • Main media advertising (which includes TV), also reported a steep decline over the past three months. In fact, the reduction in budgets was the most severe since the survey’s inception, with a net balance of -51.1% of marketing execs seeing a decline in available spend.

  • Underlying data within this main media category suggested the worst performing sub-category was out of home advertising (-61.2%). This was followed by audio (-50.0%), published brands (-49.2%), video (-39.3%) and other online (-35.1%).

  • Across each of the seven broad marketing types, direct marketing and public relations saw the joint-softest budget cuts in the second quarter, although with net balances of -41.6%, the downturns were still acute overall. Meanwhile, market research (-42.2%), sales promotions (-51.2%) and other marketing expenditure (-59.2%) each saw historic reductions for their respective categories.

What do the experts say?

  • Paul Bainsfair the IPA’s director general said the numbers revealed the “grave impact of Covid-19” on UK firms’ marketing budgets. “We can only hope that the range of government aid – from VAT cuts to the Eat Out scheme, in addition to the furlough scheme and more, can help to facilitate this,” he said.

  • Bainsfair also cautioned brands to resist the temptation to further starve marketing investment: “Our evidence from previous recessions and periods of buoyancy consistently shows that cutting marketing investment weakens brands in the near-term and limits growth and profitability in the long-term.

  • Eliot Kerr, economist at IHS Markit and author of the Bellwether Report said that given the steady flow of awful economic data that we’ve seen since the start of the UK lockdown in March, a further reduction to marketing budgets in the second quarter was “anticipated.”

  • He added: “However, the sheer scale of the latest decline, unprecedented since we first started producing this report over 20 years ago, shows the catastrophic impact that this crisis has had. Despite the weak headline figures and the corresponding hardship that many businesses will face for the rest of this year, we do expect a strong bounceback in 2021.”

What’s that about a strong bounceback?

  • IHS Markit is expecting a -11.9% decline in GDP for the year as a whole.

  • Given the current economic climate, the Bellwether model points to a -11.3% reduction in adspend during 2020. However, this figure is heavily dependent on most sectors in the UK economy remaining open for the rest of the year, with a second wave of coronavirus infections a significant downside risk.

  • IHS Markit then anticipates a robust recovery in macroeconomic conditions during 2021 as businesses move closer to operating at full capacity.

  • This would translate into a predicted +4.9% expansion in GDP and implied ad spend growth of +6.0%.

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