Both Publicis Groupe’s Zenith and WPP’s GroupM have lowered their 2017 ad spend forecasts, due to cost-cutting clients and slow economic growth in global markets.
Zenith projects 4% growth for the global ad market by the end of the year, down from its original forecast of 4.2%. GroupM revised its 4.4% forecast down to 3%, representing a loss of $6 billion in global ad revenue.
GroupM attributed the slowdown in part to the CPG and retail verticals, which account for 25% and 14% of global ad spend, respectively, and have been cutting their advertising budgets to adapt to a changing market.
“Margins have been healthy and growing in packaged goods, but sales volumes have been generally falling,” said Adam Smith, futures director at GroupM. “That influenced our forecasting.”
CPG’s are cutting costs most dramatically in the US and Western Europe, Smith said, but “many countries in this sweep spontaneously itemized pressure on CPG ad budgets in their local market headlines,” the report reads.
GroupM parent WPP has been vocal about the negative impact CPG spend cuts and adoption of zero-based budgeting (ZBB) tactics have had on its growth. In August, WPP cut its growth outlook from 2% to between flat and 1% for the year due to the ZBB trend. WPP works with major packaged goods clients like Unilever, which announced in April that it would produce 30% less ads in an effort to cut costs.
Much of the growth in the CPG vertical is being driven by disruptors with online businesses and direct ties to the consumer, said Jonathan Barnard, head of forecasting and director of global intelligence at Zenith.
“The big CPG companies, alongside big advertisers in other categories, are being very cautious about their advertising budgets as they seek to contain costs in the face of competition from innovative new rivals,” he said.
While CPGs have been most vocal about their efforts to reduce marketing spend, verticals like auto and telecom are also coming in soft, Smith said.
“The most likely thing to happen is local advertisers pick up the slack in the faster growth markets,” he said.
While neither GroupM or Zenith broke out spend forecasts by category in this report, cost-cutting measures by multinational CPGs also played a part in major slowdowns in China, where GroupM cut its global growth outlook in half.
“That’s a little bit worrying because it will be consistent with a pattern of western multinational CPG companies pulling back in an undiscriminating way globally,” Smith said, “But we don’t have the whole picture.”