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

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