Brands slash TV ad budgets as cost of raw materials escalates

by Jeremy Lee, Marketing 01-Apr-08, 08:45

LONDON - Rampant raw-material price inflation is forcing brands to cut their 2008 TV advertising budgets, meaning that UK broadcasters could face a shortfall of more than £100m on last year.

Some food manufacturers, including Premier Foods, which owns Hovis, have already announced that they are limiting promotional activity in response to the cost inflation caused by poor harvests, high demand for wheat in the Far East and the growing use of grain to produce biofuels.

Premier reported that its wheat costs doubled over a period of a few weeks in the second half of 2007.

Others are also predicted to slash spend as inflation spreads to other sectors, including steel and energy. Many are coming under pressure from retailers who are unwilling to pass on the increases to customers.

TV companies were already preparing for a 10% drop in ad revenue - about £30m - in May, caused by the early Easter, but some TV buyers are expecting this to continue throughout the year. The key autumn period could bring a decline of 7%-9% on last year.

The trend contradicts a report from the Advertising Association indicating that the TV industry would experience a 0.8% increase on 2007. It also suggested that brands were ignoring IPA

research urging them to maintain their spend during an economic downturn.

One TV buyer, who did not want to be named for fear of being accused of talking the market down, said: 'The feeling is that, the way things are going, TV ad revenues could end up down as much as 3% on 2007.'