July 06, 2018 | Marketing
Britain’s exit from the EU is now the buzzword among the hoi polloi. The event has created ripples among all sectors, with automotive, financial services, chemicals & plastics, and food & beverages being some of the worst-hit sectors. This is due to the impact on the supply chain caused by potential changes in trade arrangements within the Europe and the U.K. The food & beverage industry is one of the largest sectors in the U.K., accounting for more than 16 percent of its total manufacturing revenue.
Creative and digital marketers are watching these developments with bated breath. Both the industries collectively account for about 13 percent of the U.K.’s GDP. It is interesting to note that among the 400,000 people employed in the sector, about 130,000 are non-U.K. nationals. This is a presage to the soon-to-be labor shortages in the region. This will impact businesses, as the marketing talent majorly flows in from the European countries. About 57 percent of the marketing talent comes in from the European region, while the remaining based out of the U.K.
Declining Ad Spend
Marketers, especially in the food and retail sectors, are slashing ad spend due to Brexit and increasing inflation in the region. According to IHS Markit and IPA, about 80 percent of the companies in the region have frozen or reduced their media budgets in the third quarter. However, the companies are investing in digital media channels at the expense of traditional media. There has been a net 17 percent increase in the spending on digital channels, whereas the spend on traditional channels including TV and radio witnessed a net balance of 0 percent increase in the budgets in comparison to 9.8 percent during the second quarter.
According to the U.K. Advertising Association, about 36 percent of the clientele in the industry does not belong to the U.K. and accounts for 40 percent of the revenue. It is also imperative to note that half of the workforce in London’s advertising industry flows in from overseas.
With the Brexit headache looming large, companies are revising their strategies to stay afloat. The businesses are more likely to abandon the product & service developments, reduce supply chain costs, staff recruitment, change in location, etc. The Institute of Practitioners in Advertising reported that about 70 percent of the marketers have withheld their advertising spend. Lower sales and a desire to keep costs down also contributed to advertisers freezing their budgets.
Shortly after the result of the referendum, Nestle announced its decision to move the production of its Blue Riband chocolate bar from the U.K. to Poland. The decision was made in view of increasing import costs and the uncertainty due to Brexit.
Unilever, on the other hand, selected the Netherlands as its global headquarter over London. The move is likely to keep Unilever’s headquarter within the EU, post the U.K.’s departure from the bloc. The organization’s new base in the Netherlands would enable free cross-border flow of the labor.
Coca-Cola, the soft drinks giant, has also announced the closure of their manufacturing sites in Milton Keynes and their distribution center in Northampton. The decision has been made to improve productivity and develop greater efficiencies in the current situation. Procter & Gamble is slashing its TV ad spend in the U.K. due to Brexit and currency pressures. On the other hand, Unilever is also making changes to the structure of the company from dual governance to single entity.
Marketers based in Europe are reassessing their advertising spend, shifting their locations and closing manufacturing units to stay afloat in the Brexit situation. Brands need to strategize on where and how to spend on advertising during Brexit. Marketing procurement needs to be on its toes while doing media reviews and changing media agencies.