P&G, Unilever Slash Ad Spending

Story Looks Especially Bleak for Magazines As Package-Goods Giants Respond to Rising Commodity Costs

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BATAVIA, Ohio (AdAge.com) -- Procter & Gamble Co. slashed media spending last quarter at a steep double-digit pace that accelerated as the quarter progressed -- a move that bodes ill for media players who had been counting on the relative stability of the world's biggest advertiser.

Figures are measured-media numbers, not total marketing spending. Data cover April through June for Spanish-language and spot TV, magazines, Sunday and local magazines and network radio as well as April-through- May data for network, cable and syndicated TV, Hispanic magazines, newspapers, internet and spot radio. Comparisons are to prior-year period. Source: TNS Media Intelligence
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Not only that, but many of P&G's biggest global rivals -- including Unilever, L'Oréal and Johnson & Johnson -- also cut U.S. spending last quarter, according to data from TNS Media Intelligence, though not nearly as sharply or broadly.

The pullbacks come as the marketers grapple with rising commodity costs, big price increases, rising private label sales and consumers who've been spending less. Unilever executives last week described the U.S. market as essentially flat.

A study by PriceWaterhouseCoopers for the Grocery Manufacturers of America showed the percentage of package-goods players whose North American sales were shrinking as a share of their total rose to 41% in the fourth quarter from only 6% in the first quarter of last year.

Though the TNS database isn't complete for the quarter, those sections that are paint a particularly glum picture of rapidly decelerating spending for P&G throughout the last quarter, particularly for magazines, an area where the company had been rapidly increasing spending in recent years.

Hurting media
P&G's magazine spending fell 8% to $71.7 million in April from a year earlier, 22% to $70.7 million in May vs. the prior year and 26% to $60.3 million in June -- in all down $44 million from last year.

TV spending appeared to follow a similar pattern, though TNS data are available only through May. P&G cut April TV spending 4% from a year ago to $179.4 million, followed by a much deeper 31% cut to $144.3 million in May.

Based on media for which TNS data are available, P&G cut spending last quarter 19.6%, or more than $135 million, from a year earlier. The cuts likely will be much deeper once June data for network, cable and syndicated TV spending are factored in. Though P&G's online spending was up 10% in April and May through a year ago, that $600,000 increase was swamped by cuts in other media.

The trims mark the first time in several years P&G has made a major pullback in media spending in its final fiscal quarter and are seen by some industry watchers as a bad sign heading into the company's fourth-quarter earnings announcement, set for Aug. 5.

One publishing executive said P&G pulled back magazine spending in May and June but has committed to spending about the same as last year in its new fiscal year, which began July 1, albeit with some swings from month to month and off a base depressed by the year-end cuts. Another described P&G as "cautious" heading into the new year.

Upfront pullback
One media buyer said "the market has seen some cutbacks from Procter," and the cuts varied by medium. Several media buyers said that due to the worsening economic climate, a wide range of advertisers may pull back money committed in the upfront when deals are finalized later this month.

A P&G spokeswoman said the company doesn't disclose details of its media-buying strategies. "Our media choices are based on consumer understanding and whether the vehicle is effective in reaching the target consumer of a brand," she said.

Indeed, P&G's pullback was far from uniform. The cuts were led by three big brands -- Olay, Pantene and Crest -- that traditionally have been the company's biggest spenders. Olay and Pantene in particular have seen sales slow and shares slip this year.

Other brands, including Cover Girl, Always, Tampax and Actonel -- a group that mostly has been faring better than last year -- hiked spending in the second quarter.

P&G's second-quarter pullback comes after a double-digit spending jump in the first quarter, led by beauty brands. Despite that increase, global organic beauty sales rose at what P&G executives described as a disappointing 3%.

Unilever cuts too
P&G doesn't appear to be alone in pulling back last quarter. U.S. spending by rival Unilever also trailed off as the quarter progressed, following a 10% spending hike in the first quarter, according to TNS data, though CEO Patrick Cescau said in an investor conference that globally, ad spending was up about $55 million in the period.

Investors still hammered Unilever's stock down 7% on July 31, as its promotion spending fell more than ad spending rose, and volumes declined despite a 7% increase in organic sales fueled entirely by price hikes.

L'Oréal's second-quarter spending appeared to hold even with last year until June, when its magazine spending dropped 35% from a year ago to $18.2 million.

J&J's magazine spending was essentially flat in the second quarter, but cuts in TV spending through May led to an 8.6% decline overall to $313 million for the quarter, based on available data. At least part of that softness in second-quarter TV spending could stem from brands saving budgets for a substantial buy focused on the Olympic Games starting later this week.

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Contributing: Abbey Klaassen, Brian Steinberg and Nat Ives

September no salvation for magazines

If the magazine industry was hoping traditionally fat September issues would help boost their performance in a year when they've scrambled just to stay even with last year's business, there's plenty of disappointment out there.
Richard Beckman, president of the Condé Nast Media Group Credit: Naila Ruechel

September is the month when fashion labels debut new lines to expectant readers, and other marketers pile in to try to grab a share of the attention. But fashion marketers took a conservative pose this year, while retail, pharmaceutical, financial, some automotive and even some luxury advertisers pulled back.

That meant Condé Nast saw September ad pages slip at titles including Glamour, where ad pages fell 10.6% to 257; GQ, which declined 8.5% to 293; Vogue, which dropped 7.1% to 674; W, where pages sank 17.7% to 396; and Vanity Fair, which settled 5.4% down at 335. The Fashion Rocks supplement, part of a bigger integrated program now in its fifth year, managed to roughly match last year's ad-page count.

Allure notched a minor gain -- and no gain is truly minor in this market -- of 0.8%. Pages in Lucky are down for the year through its September issue, but that's despite an impressive September gain of 7.2%.

"We're happy to produce the same amount of business as last year," said Richard Beckman, president of the Condé Nast Media Group. "This is one of the toughest ad markets we've had in a long time."

It's also complex. Advertising for premium beauty products slipped as traffic to department stores fell off, but mass beauty advertising has done well, Mr. Beckman said.

At Elle, where September ad pages grew 6.6% to 420, publisher Carol Smith said luxury advertising has declined as smaller jewelry accounts hunkered down. Giants such as Cartier and Tiffany have held their positions or advanced, she said.

Although retail has suffered right along with nervous consumers, there were also bright spots, Ms. Smith said. Express, under new ownership since 2007, is coming into magazines including Elle, she said. And Banana Republic observed its 30th anniversary with a 12-page ad unit in September.

September declines also materialized at Time Inc. magazines including Essence, which fell 11.9% to 126 ad pages, and In Style, which dropped 13.7% to 341. Hearst's Cosmopolitan slipped 3.2%, while siblings Harper's Bazaar added 2.7% and Marie Claire rose 4.7%.

The highest ends of several advertising categories have outperformed the middle for Esquire, said Kevin O'Malley, VP-publisher at the title. Luxury auto has held up, for example, while midrange brands including Toyota have downshifted. He said his September issue will show a decline but would not be more specific, saying some of its pages had moved to a blowout anniversary issue in October.

It isn't clear when sales will get easier again. "I think that this is going to extend well into 2009," Mr. O'Malley said. "That's kind of the way the tea leaves are feeling."
-- Nat Ives

Economy tests TV upfront commitments

Media buyers are looking to mid- to late August for hard evidence of whether the economic climate will prompt marketers to trim spending on broadcast TV. That's the period when advertisers can choose to fulfill the $9.2 billion in spending commitments they made during upfront negotiations or hold that money back.

"I'm personally trying to reconcile the two very different marketplaces that are going on: the very healthy upfront marketplace and the very slow scatter marketplace," said Andy Donchin, exec VP-director of national broadcast at Aegis Group's Carat. "I would be surprised if there wasn't some breakage moving from hold to order."

It's the level of commitment trims that everyone will be analyzing. To be certain, some money earmarked for upfront purchases is taken back every year, and Mr. Donchin said he isn't convinced this year will be any different. But with third-quarter scatter buying slowing, it's clear both buyers and sellers see a cooler market than they did a few months ago. Gazing at that horizon, most broadcast networks sold more inventory than usual in the upfront this year, which accounted for slight upticks in volume. "The sellers made a concerted effort to write more business, anticipating that they needed it as sort of hedge against something that might fall out," one media buyer said.

Which categories are likely to hold back? Auto spending was reported as down during the upfront, with foreign automakers committing more than their U.S counterparts. Pharmaceutical spending was seen as flat to down, and retailer spending was noticeably crimped, according to buyers and sellers. One broadcast network reported spending by package-goods companies was down in this year's upfront.

If the economy should improve in the coming months, networks will be happy to get the ad time back and resell it for a higher price as scatter. But if the slow demand continues for scatter (spots bought on a quarter-by-quarter basis), networks may find themselves having to sell the ad time for less than they asked for in the upfront, a position they haven't seen for years.
-Brian Steinberg
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