The British economy remains full of beans

As surely as swallows herald summer, at the first whiff of recession one of the big advertisers has massively cut its marketing and media spend. Those with long memories will recall that Heinz has something of a reputation as a spend-slasher. A decade ago, it created notoriety for itself by sensationally cutting its main media spend – allegedly because it saw greater value in below-the-line promotion. Actually, it was an experiment which involved a freeze on product advertising (mainly overpriced television), as opposed to corporate advertising (outdoor); and a not-altogether successful one, either, as Heinz had to return to television less than four years later.

This time, we are led to believe, it is no ‘experiment’ and the cuts are Draconian. Heinz is freezing not only advertising (which amounts to about £25m a year) but also most of its marketing services spend outside trade marketing. The freeze comes in the wake of a substantial acquisition, HP Foods, but also foreshadows a strategic review of its brand portfolio across Europe.

This at a time when the outlook for the UK economy has undoubtedly become pessimistic. It’s no secret that sales in the high street have been disappointing over much of the past six months, nor that residential property values (whose buoyancy fuel much of the confidence behind UK consumer spending) are now falling. And, as if to confirm the gloom, Gordon Brown has been caught fiddling the goalposts of the economic cycle – almost certainly to defer a round of economically stultifying tax increases. Add to this the IPA’s downbeat assessment of quarter two in the Bellwether report, echoed in Zenith Optimedia’s separate findings, plus a rather plaintive appeal by ITV to spend more money on TV advertising, and you’d think we were heading for a full-scale recession.

But all is not what it appears. For a start, one swallow, in the case of Heinz, is no precursor to a dreary summer. Heinz’s problems, attributable to over-extension in what is a murderously competitive category, are largely of its own creation. It may well make sense to divest, say, the John West and Linda McCartney brands in pursuit of better margins. Whether an indefinite across-the-board freeze on media spend comes under the same sensible household economy heading is highly debatable.

As for the general economic outlook, it is best characterised as ‘uncertain’ rather than grim. There were special factors influencing second-quarter performance, such as the election lull. Moreover, June retail sales bounced back; a rate cut looks just round the corner, with positive implications for the housing market; and the stock market, which often plays a useful predictive role, is putting on its best performance in years. Nor need we pay too much attention to the squawks of commercial TV, once a sure cue of impending recession. If 2005 has been a fairly disastrous year for ITV, that is as much to do with irreversible structural changes in the TV advertising market as with more immediate difficulties caused by the performance of the UK economy.

Stuart Smith, Editor

Latest from Marketing Week

NOT REGISTERED? IT'S FREE, QUICK AND EASY!

Access Marketing Week’s wealth of insight, analysis and opinion that will help you do your job better.

Register and receive the best content from the only UK title 100% dedicated to serving marketers' needs.

We’ll ask you just a few questions about what you do and where you work. The more we know about our visitors, the better and more relevant content we can provide for them. And, yes, knowing our audience better helps us find commercial partners too. Don't worry, we won't share your information with other parties, unless you give us permission to do so.

Register now

THE BEST CONTENT

Our award winning editorial team (PPA Digital Brand of the Year) ask the big questions about the biggest issues on everything from strategy through to execution to help you navigate the fast moving modern marketing landscape.

THE BIGGEST ISSUES

From the opportunities and challenges of emerging technology to the need for greater effectiveness, from the challenge of measurement to building a marketing team fit for the future, we are your guide.

PERSONAL AND PROFESSIONAL DEVELOPMENT

Information, inspiration and advice from the marketing world and beyond that will help you develop as a marketer and as a leader.

Having problems?

Contact us on +44 (0)20 7292 3711 or email subscriptions@marketingweek.com

If you are looking for our Jobs site, please click here