Exclusive - Supply chain disruption and advertiser spend

Chris Pash
By Chris Pash | 25 November 2021
Credit: David Veksler.

What’s the point of advertising if you have little to sell?

Global supply chain issues, affecting everything from new car deliveries to cotton thread, are causing headaches in some sectors.

This could drag on ad spend. The December quarter is a peak time for marketing budgets but some advertisers may slow campaigns if they are unable to meet demand.

Some of the world’s biggest advertisers have issues, caused by the global pandemic, getting raw materials to make their products.

And bottlenecks in moving cargo across the world are causing delays in delivery of finished products.

Kimberly-Clark Corp CEO Michael D. Hsu told analysts that earnings were disappointing, as higher inflation and supply chain disruptions increased costs beyond expectations.

“A tight US labor market and disruption in domestic and international transportation markets are having an elevated impact on our supply chain as we work to get our products to the shelf and meet consumer demand,” said Hsu.

US-based Morgan Stanley analyst Benjamin Swinburne, speaking to CNBC: “It's a big topic, especially as we head into the holidays here, which is the biggest part of the year from an advertising perspective.

“There's no question supply chain risks exist, particularly for those who sell goods. I think in general, though, the ad market is overall quite strong. We expect the ad marketing in the United States this year to grow almost 30%.”

In Australia, consumers are being constantly reminded of supply chain issues. Get in early for Christmas shopping.

Australian Retailers Association CEO Paul Zahra: "With our supply chains under significant pressure, consumers need to be shopping early if they want their products to arrive in time for Christmas.

"There are several issues that retailers are navigating at the moment - everything from COVID impacts, shipping delays and threats of industrial action from port workers and delivery drivers."

Catch GM of Catch Marketplace Steve Traplin: ‘So we've been lucky in the sense that maybe some of our larger sellers have been impacted by the COVID supply chain issues, but we've had other local sellers that pick that up, and they're all ok.” 

But putting a finger on where the shortages are is difficult but it becomes obvious to shoppers.

Two-thirds of Australians say product availability on the shelves has been impacted since COVID, according to a study by retail media group Shopper, surveying 1,901. 

Karissa Fletcher, head of marketing at Shopper: “Our latest study shows that Australians are noticing a reduction in the availability of some grocery and fresh food items. However, rather than go without 31% of shoppers are willing to try alternative brands in store and 21% are willing to visit multiple shops to get the things they need. 

"This presents an opportunity for advertisers in the lead up to the Christmas to ensure their brands are present in market and in a position to enjoy top of mind recall with shoppers looking to conveniently fulfil their needs.' 

Jane Ractliffe, the managing director of SMI (Standard Media Index): “I think the biggest impact has been on the auto market – there’s been no supply of new cars so advertising has fallen away from this category.”

"Last year total ad spend from auto manufacturers fell by 20%, representing $200 million coming out of the ad market in one year.

“In terms of dollars lost during COVID, that amount was only exceeded by the Travel category (for obvious reasons!)

“So the pick up now in Auto ad spend – from a low base – is one of key reasons we’re seeing the ad market bounce back.”

Analysts at investment bank Macquarie in Australia recently did a spot check on the shelves at Kmart, Target, Bunnings and JB Hi-Fi in northern Sydney.

Many shelves were empty when they checked last year. However, this time there appeared to be none of the problems evident last year when COVID has impacted offshore factory production. Then there were shortages of TVs at the Boxing Day sales.

The Macquarie spot check found the inventory position across retailers appear strong ahead of Christmas but staff shortages remain a headwind.

“Although there is no evidence of inventory issues, staff shortages were cited as an area of concern for some stores, especially ahead of Christmas which is expected to post record trading this year,” write the analysts in a note to clients

Roy Morgan forecasts point to Australian spending hitting $59 billion in the pre-Christmas sales period, up 11.3% on pre-pandemic conditions.

“With a soft labour market and absence of migrant workers, we suspect there could be some delivery delays to consumers,” write the Macquarie analysts.

“Australia Post has recommended Christmas parcels should be posted by December 15 at the latest to ensure on-time arrival."

Analysts at Citi: “International supply chain pressures in the discretionary categories are yet to impact retailers, likely because suppliers are offsetting higher supply chain costs with lower promotional spend as their categories continue to experience high demand.”

The global advertising groups haven’t seen a marked impact from supply chains but they note a possible impact in holiday season trade. .

At Omnicom, CEO John Wren, has been upbeat on the outlook for the global advertising company. 

However, he told analysts his forecasts are “a bit conservative” this year because of supply chain concerns throughout this pandemic.

“They have gotten a bit more severe, but not outrageously more severe,” he says.

“And we know that clients will continue to spend at the level they're currently spending at. We just don't know if there'll be those year-end situations where they can deploy more dollars.”

WPP CEO Mark Read: “To date, we haven't seen an impact of supply chain disruption in our numbers.”

But the big digital platforms and players have seen a creeping squeeze on some sectors.

Philipp Schindle, Google’s chief business officer: “In line with the widespread reporting of supply chain weakness in the auto industry, we've seen some impact on vehicles within the auto vertical, which started earlier in the year, although the impact has really been offset somewhat by increased demand in related areas like parts, accessories, repairs and maintenance.

Facebook’s COO, Sheryl Sandberg: “Businesses are still making the shift online, but e-commerce is no longer growing at the pace it was at the height of the pandemic.

“These factors have been compounded for many advertisers by major global supply chain issues and labor shortages, which have left many consumer businesses with less inventory.

“This has reduced their appetite to generate demand from consumers, which has impacted advertising spends.”

Evan Spiegel, Snap’s CEO, says advertising partners are facing a variety of supply chain interruptions and labor shortages.

“This in turn reduces their short-term appetite to generate additional customer demand through advertising at a time when their businesses are already supply constrained,” says Spiegel.

“The ongoing magnitude and duration of these global supply and labor disruptions are inherently unpredictable and in the meantime, we are focused on supporting our partners in this uncertain environment.

Snap expects the supply chain headwinds to impact advertising demand in the December quarter.


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