These Global Brands Have One Thing in Common When It Comes to Recession Planning

The International Monetary Fund (IMF) sounded the loudest siren yet that the global economy was teetering on the edge of a recession last week, with the impact of the Ukraine war and Covid-19 continuing to stall growth in the U.S., China and Europe. The IMF slashed its 2022 global growth forecast by 0.4% to 3.2%. Inflation, and the resulting slowdown, is predicted to continue in 2023, when economic global growth is now forecast to be 2.9%, 0.7% lower than more buoyant predictions made in April. These figures dovetail with trepidation from CMOs signing off on budgets for the rest of the year. In July, both Dentsu and the U.K.’s Institute for Practitioners in Advertising (IPA) wrote down their ad spend forecasts for 2022 and 2023. In the U.K. alone, insights business Retail Economics found the amount of spare cash the average family had on hand to spend each month dropped 12%, or $135. Across the economy as a whole, this amounts to £3.9 billion as non-essential spend is tightened. In the U.S., consumer spend barely rose in June after falling in May, underscoring the pressure on Americans’ paychecks. You Can’t Pause Your Brand. Is It Ready for an Economic Downturn? Upping the ante on marketing Speaking to Adweek in June, Coca-Cola’s global CMO Manolo "Manuel" Arroyo said the beverage giant had gleaned experience dealing with economic crises and developed a set of "best practices" to manage business outcomes in hyper-inflationary environments. "To get [to where we want to be] we will need to navigate a very, very choppy short-term period. That’s perfectly fine. The name of the game is about segmentation and adapting to ensure we maintain our customer base," Arroyo explained. Though he recognized the current economic backdrop was challenging in the short term, he said the key was thinking three to five years ahead. Last year, Coca-Cola appointed WPP to run its multibillion-dollar marketing business across 200 countries, tasked with driving transformation through digital experiences that appeal to younger consumers. In July, Coca-Cola’s CFO John Murphy said the brand had upped investment in consumer-facing marketing in the second quarter of this year, to balance out price rises of around 5%. Murphy said the brand was using a "dynamic" framework to ensure ad budgets were directed towards the country-category combinations that drove the highest growth. Unilever’s second quarter earnings call had similar shades of confidence that marketing could help it come out the other side. As prices rose 11% in Q2, the Hellmann’s and Dove owner upped ad spend by $202 million to ensure it ended up in shoppers’ baskets. Finance chief Graeme Pitkethly said more brand and marketing investment is expected in the second half of the year. The name of the game is about segmentation and adapting to ensure we maintain our customer base.—Manolo Arroyo, CMO, Coca-Cola Following a bumpy 12 months, Diageo also vowed to continue to "invest strongly" in marketing. It already spent $3.3 billion on marketing through June 2022, up 25% from $2.64 billion for the same 6 months of 2021. CEO Ivan Menezes said the Johnnie Walker producer had the "strength and the consumer connection" to be able to navigate through these volatile times. "We have the ability in our supply chain to move very quickly and in our marketing dollars to ensure we're tracking these shifts in consumer behavior," he said. Diageo has been offering more personalized experiences to customers; including its Edinburgh-based Johnnie Walker experience. For Procter and Gamble, the picture is more complex. In the most recent quarter, the Tide-maker saw sales rise 3% to $19.52 billion, but thanks to price climbs of 8%, there was a 1% decline in volume. CEO Jon Moeller said P&G had made savings through cuts to marketing over the past few years but reinvested these back into digital marketing which now accounted for "more than 50%" of P&G’s media plan. Speaking in June at VivaTech in Paris, P&G’s marketing chief Marc Pritchard said this was the time for marketers to "double down" on their activities rather than cut back, especially in media. "That’s where I come back with technology and finding data and analytics and ensuring that what we’re doing is being far more productive, so we can reach as many people as possible. It’s not about spending, it's about reaching as many people as possible with precision and without waste," he said. We're just having to plan for more different scenarios and that means having more flexibility in the marketing calendar to pivot, if need be.—Chris Kempczinski, CEO, McDonald's Discussing its balance sheet with investors in July, McDonald's CEO Chris Kempczinski said the fast food giant is planning what might happen if consumer spend took a downturn, plotting out its "marketing levers and investment scenarios." Kempczinski said the brand might need to lean harder into promoting cheaper menu option. He made no mention of any advertising belt tightening. "These things happen at a market level on a country-by-country basis," he said, adding, "the way our teams are looking at it is—because of this uncertainty around consumer sentiment—we're just having to plan for more different scenarios and that means having more flexibility in the marketing calendar to pivot, if need be." Buy Now, Pay Later Industry In Flux Amid Inflation and Potential Recession Value and values All signs point to the world's heftiest ad spenders eyeing marketing as a tool to help them muddle through inflation for the second half of 2022—and waiting to see what's to come in 2023. Looking to the 2009 downturn, the IPA found brands that upped ad spend 8% increased market share four times more during the recovery phase. Stick to your knitting. Make great products and services, look after your people in the difficult times ahead.—Clare Hutchinson, deputy chief strategy officer, VCCP CMOs will have to lean heavily on campaigns that extol brand value. A recent Havas study found 63% of people's expectations of brands had increased when it came to how they delivered products, improved peoples' lives and played a role in society. Separate data from Accenture reveals consumers are allowing themselves to be inconsistent as they reconcile personal values with practical realities. This has led to a "crisis of relevance" for brands, with nearly two thirds (64%) of people saying companies need to respond faster to meet their changing needs. David Droga, chief executive officer and creative chairman at Accenture Song, said given the weight of disruption people are grappling with in their lives, businesses should "evolve to not only stay relevant but to be useful." McDonald's is one brand using purpose as protection against an economic downturn. Clare Hutchinson, deputy chief strategy officer at agency VCCP, said investing through the recession has proven successful for clients time and again. But it's value, combined with values, that will help them ride the next economic wave. Indeed, McDonald's told investors how social responsibility would help shield it from the economics storms ahead. "Brands and businesses that cling to external purpose in the cold winds of recession risk missing the point. If businesses want to connect with consumers, and to be truly valued, it’s time for a shared values reset," said Hutchinson. "Stick to your knitting. Make great products and services, look after your people in the difficult times ahead and keep focusing on reducing your harm. You will be judged as much, if not more, by what you do than what you invest media money in saying," she said. Purpose Versus Performance: Major Food and Beverage Marketers Find the 2 Are Inextricably Linked