Why are Unilever, P&G and Coke ramping ad investment in a slow market? Retail Media is only part of the answer.

Large CPG Holding Companies are increasing ad spend faster than inflation, faster than revenues and faster than other advertisers.?

As the advertising landscape fragments, the devil is in the detail of these increases. Retail Media ad load is surging and declining linear TV audiences are spreading across a broader base of media than before.

The advertising choice set in front of marketers has never been greater, and each are deploying these spend increases differently.

How these businesses approach measurement and channel planning will distinguish success and failure.

Mi3 Fast News hosted the excellent Brian Wieser, CFA on their podcast this week, deep-diving into his analysis of CPG advertising trends. (Register to read their summary or search ‘MI-3’ in your podcast app).

Brian's analysis

The key headline of Brian's analysis is that almost all the major CPG holding companies are growing A&P spend faster than inflation and faster than non-CPGs. While this has been positioned as ‘investing in brand for the future’ during earnings calls; this also represents a cause for concern as spend growth may be disproportionately going towards short-term performance channels like Retail Media - representing a risk to long term profits.

My take

Brian is right to flag this trend. Retail media formats typically have one dimensional effects for brands, ‘harvesting’ existing consumer demand rather than ‘generating’ it. Bigger brands tend to achieve greater efficiency in these channels due to the ‘priming’ effect of their brand equity; and because of this, when measurement of effectiveness is poor (e.g. reliant on free platform measurement) brands can be lured into spending more and more on demand harvesting at the expense of demand generation.

So any substitution of Demand Generative ad spend for Retail Media is important to flag as it may be create a drag on long term profitability.

In this case however, it’s not clear that this is the case for the top brands.?

We shared a chart of UK spend data earlier in the year (see below). This data is from Nielsen, who don’t track key performance channels like Retail Media and PPC and shows that CPG brands are growing demand generative (‘brand building’) ad spend above inflation too.?

Varying tactics?

It’s very likely different businesses are following very different media strategies within these aggregate increases in spend. It’s unlikely all of these increases are being funneled into short-term tactics. Building a picture of where this money is being spent is tricky (see Matt Hill Media Leader column for more details on this), but there are some clues. In the Nielsen data for example, Unilever have tripled TV spend since pre-pandemic; while Coca-Cola have halved it despite an overall 25% increase in tracked spend.?

So it’s likely some CPG brands are falling into the trap highlighted by Brian, some are doing exactly the opposite and some are taking a more balanced approach. The complex mix of specialist agencies, in-house teams and platform partnerships that CPG brands use today almost guarantees this fact.

In a fragmenting media landscape, holistic effectiveness measurement is the holy grail

What is almost certainly true is that measurement of effectiveness will distinguish the success and failure of these spend increases.?

Those that develop holistic frameworks balancing the measurement of direct and indirect effects of advertising will fare best. Those that rely on ‘fast and free’ feedback loops from platforms will do well in their next quarterly report; and less well in the next period of high consumer price inflation.??

"What we've had over the past 18 months is really a vast, unplanned experiment in showing how brand advertising, brand marketing, provides true financial value to companies... What they [brands] were able to do with their pricing strategies was push through far greater price increases than they thought they could."

Ian Whittaker , founder of Liberty Sky Advisors highlighted the great natural experiment of 2021-23 at the IPA’s Effworks Conference last October. To ensure the success of spend increases, it’s key that brands take the right lessons from this; and building holistic measurement frameworks helps them avoid the short-termism traps highlighted by Brian.??

It's interesting that this is something Diageo have begun to call out during investor calls with a measurement a key component of their 'profitable growth algorithm' .

Retail Media is here to stay - but brands need both short and long term growth levers to thrive?

Retail Media ad load is only likely to grow and command more budget from CPG brands as sales continue to move online. It is also true that brand strength matters even more in digital environments than in physical commerce where discovery is far more intentional.

So CPG brands are in the tricky position of having to balance both Demand Harvesting and Demand Generation campaigns in order to grow share and margin.

Viewed through the right lens - Retail Media can improve effectiveness and efficiency; but it must be anchored against the right alternatives

Through one lens, Retail Media is another toll both for brands to navigate; it can erode budget for demand generation campaigns and carries the risk of sacrificing margin to retailers.?

However, through another it is Point of Sale on steroids.?

Better targeting, better attribution and the ability to bid up/down in real-time means RM is theoretically a more efficient and effective growth lever than traditional PoS.?

The risk Brian highlights is when Endemic Retail Media spend is conflated with advertising rather than Point of Sale. This can be avoided if brands and agencies learn to piece together seemingly disparate strands of measurement into a cohesive whole.?

Building holistic measurement frameworks is neither cheap nor easy, but failing to do so will have a direct effect on holding companies P&Ls and Valuations.?

CPG brands represent hugely valuable commercial assets. High mental and physical availability built over decades creates persistent revenue streams decades into the future; something beloved of value investors like Warren Buffet. But in order to maintain these future revenue streams, the right long term media strategies need to be pursued.?

Holistic measurement and integrated channel planning

Retail Media undoubtedly complicates the management task for CPGs, but with the right measurement in place this complexity is a feature not a bug. RM is simply another example of the varied and dynamic range of growth levers available to marketers today; helping deliver business leaders the right growth at the right time at the right cost.

To achieve this, effectiveness measurement and channel planning have to be taken out of silos and optimised for the ecosystem that it is.

It’s likely some brands are doing this well, and some not. It will be fascinating to see how this plays out in their balance sheets and earnings calls over the coming years.?