The Shifting Advertising Landscape for US Food and Beverage Brands
For food and beverage brands, the US stock exchanges are down across the board year to date in 2022 facing many economic headwinds (NASDAQ -33.8%, S&P 500 -21.4% as of 11/11/22) and tech companies with their huge market caps are a key driver of the declines, losing value at a rapid pace. Google is down -33.5%, Amazon is down -40.9%, Meta is down -66.6% and Snap Inc is down -75.0% year to date. With most tech business models relying on advertising revenue, significant decreases in advertising revenues in recent history are primarily to blame for this value erosion.
What is driving the dramatic declines in advertising revenues?
If you read the firms’ financial statements, they would lead you to believe the advertising declines are due to economic uncertainty: Meta says the problem is “the uncertain and volatile macroeconomic landscape”; Google blames “the challenging macroclimate”; Snap, “macro headwinds.” And it’s true, there are macro headwinds such as rising inflation, interest rates, and supply chain issues which could contribute to suppressed advertising demand, if it meant that consumers were spending less on the goods being advertised. Except that, consumers are spending more. US consumer spending is actually up 0.4% year to date, and the economy overall is strengthening with GDP up 2.6% last quarter.
Therefore, there is something else at play driving the decrease in ad spend, which is the decreased effectiveness of digital ads in recent history. You may have heard of Apple’s iOS 14 update last fall from your panicked marketing team. This update essentially hid all users’ data, unless the users consent to share it – a big problem since it turns out that only 16% of users have consented to their data being tracked since the change. Therefore, digital ads have become less effective and harder to track the return on ad spend.
What does this mean for Food and Beverage Brands in the US?
Given this recent blow to the digital advertising landscape, we recommend that food and beverage brands go “back to the basics”. While digital marketing certainly still plays a role in upper-funnel brand awareness for brands with a brick & mortar-first business model, marketing investment should be diversified to shift more spend to lower funnel, close-to-conversion tactics in order to realize a stronger return on investment. There is a renewed importance of shopper marketing: temporary price promotion & coupons, feature ads & displays, point-of-sale signage & shelf tags, and instore sampling demos are tried-and-true methods to build a brand in the US. Though these programs are perhaps more complex to execute than clicking a button to set up a digital ad campaign, the return will surely be worth the effort.
If you have a question about the shifting advertising landscape for US food and beverage brands, then feel free to get in touch with our expert food and beverage brands team and we’ll be able to help you!
Image Source: Company Data, compiled by Scott Galloway