Coca-Cola eyes more efficiency after 35% adspend plunge in 2020

Coca-Cola has revealed the full extent of its advertising “pause” during the worst of the pandemic as its annual spend dived 35%.

Advertising expenses fell $1.47bn to $2.77bn (£2bn) in 2020 from $4.25bn a year earlier, according to the annual report.

The 35% rate of decline was more than three times the company's 11% fall in net revenues, which dropped to $33bn from $37.26bn. Revenues fell 9% on an organic basis.

It also contrasts with some global rivals, including PepsiCo, which maintained its annual adspend and made no major cuts last year.

Three reasons

Coca-Cola, which is widely regarded as one of the world’s top brands and is one of the biggest advertisers, told Campaign there were three reasons for cutting spend so steeply in 2020.

The pandemic was a key reason as “we paused marketing, which included redeploying funds to support our local communities”, a Coca-Cola spokesperson said.

The Tokyo 2020 Summer Olympic Games were also postponed, “impacting our marketing plans to support the Games” as an official partner.

In addition, “in July, we paused all social media activity globally for multiple weeks while addressing our internal policies associated with hateful activity and harmful content on social media platforms” – a comment that suggests the suspension of spend involved a significant amount of money.

Coca-Cola also signalled that it used the pandemic to drive greater efficiencies in advertising spend, following a global marketing restructure and a move to a more “networked” organisational model in August 2020.

“Currently, we are on a journey to fundamentally transform and dramatically improve the effectiveness and efficiency of our marketing investments,” the spokesperson said.

“We are building targeted, experiential campaigns that are data-driven, occasion-based and always-on, focusing on our strongest brands and most compelling opportunities.

“We have a global creative and media agency review under way, which will improve processes, eliminate duplication and drive efficiency to fuel reinvestment in our brands.”

When Coca-Cola announced its global agency pitch in December 2020, the company said it was seeking “a complete redesign of our media and creative agency models in an effort to align the strategic, operational and commercial needs of our new, networked organisation”.

Production management, shopper and experiential marketing are also part of the review.

It is thought Coca-Cola has requested information from agencies but has yet to draw up shortlists as part of the process.

PwC is advising Coca-Cola on the creative pitch and MediaSense is supporting the media review.

Most of the global agency groups, including Dentsu, Interpublic, Publicis Groupe and WPP,  have existing relationships with Coca-Cola and are expected to pitch for the business, although Omnicom has a deep relationship with PepsiCo, a key competitor of Coca-Cola.

'No marketing is going to make much difference' during Covid
Coca-Cola’s decision to cut advertising expenses by 35% during the coronavirus slump clashed with some conventional thinking that brands should maintain advertising in a downturn to gain market share.

PepsiCo, which also has a large snack foods business that performed well, increased organic revenues 4% while keeping its $3bn adspend flat last year.

James Quincey, chairman and chief executive of Coca-Cola, explained the decision to cut marketing spend on the company’s Q2 earnings call in July.

“Why would I want to spend money in a period if I can't get the return, particularly if there's a strong lockdown?” he said.

“If we see opportunities to invest and generate and accelerate the top-line growth, that's what we're going to do [in future], which is the inverse of what we saw in the second quarter.

“We thought no marketing is going to make much difference in the second quarter, so we pulled back heavily.”

Byron Sharp, a marketing professor and author of a seminal book, How Brands Grow, has praised Coca-Cola’s decision to stop advertising, rather than making ads about Covid-19, at the start of the crisis.

“I think that's a much better thing to do than rushing down to your agency and saying: ‘We've got to have a Covid ad’,” he told Campaign in September. “Wait, and save your money.”

Sharp added some other brands were guilty of “embarrassing arrogance” for thinking that consumers would be interested in what they had to say about the virus.

'Tremendous opportunity for us to drive greater efficiency'
Coca-Cola’s $2.77bn outlay on advertising last year was the lowest amount since 2007.

Advertising expense was close to $4bn or higher for each of the last five years before the pandemic.

Spend peaked at $4.25bn in 2019, although the 3% increase that year lagged revenue growth of 9%.

Coca-Cola said at its annual results in February 2021 that it would increase spend this year but ad expenses might not return to pre-pandemic levels.

“I don't think we’re fixed on a number that’s necessarily linked to 2019,” John Murphy, the chief financial officer, said on the earnings call, citing several factors that could reduce costs.

There is a “tremendous opportunity for us to drive greater efficiency across the marketing spend portfolio” and the company has become “a lot more flexible” – “we’ve learned a lot in the last year that allows us to turn the tap on and tap off with much greater fluency than perhaps we’ve done in the past”, he said.