The UK advertising industry is growing. According to the Advertising Association/WARC Expediture Report, advertising spend in the UK is expected to have risen by 5.2% to £24.8bn in 2019, with similar increases predicted for 2020.
The increased spend is being driven by the growth of online advertising and digital formats like video on demand, which are offsetting declines in traditional media such as TV, magazines and newspapers. Online display advertising spend is expected to have grown 13% in 2019, while video on demand advertising spend is predicted to increase by 19%. In contrast, TV ad spend is expected to fall by almost 1% in 2019, while spend in national newspapers was forecast to fall by 3% (having dropped 7% in 2018) and by almost 8% for magazines.
In just 25 years, digital advertising has grown to account for more than half of UK advertising expenditure - online ads are expected to account for 62% of UK advertising spend in 2020, up from 57% in 2018, according to industry think-tank Credos. The UK now has the largest online advertising market in Europe and third-largest in the world behind only the US and China, while UK consumers spend more online than any other G20 nation.
Digital disruption is providing new formats and opportunities for advertising firms. It has spurred innovation in the UK advertising industry, which has developed skills and tools to deliver more targeted and relevant advertising and marketing. The UK’s ad tech sector, which produces digital tools and services for the industry, comprises more than 300 UK-companies, with over £1bn invested since 2013.
The UK advertising industry is growing. According to the Advertising Association/WARC Expediture Report, advertising spend in the UK is expected to have risen by 5.2% to £24.8bn in 2019, with similar increases predicted for 2020.
The increased spend is being driven by the growth of online advertising and digital formats like video on demand, which are offsetting declines in traditional media such as TV, magazines and newspapers. Online display advertising spend is expected to have grown 13% in 2019, while video on demand advertising spend is predicted to increase by 19%. In contrast, TV ad spend is expected to fall by almost 1% in 2019, while spend in national newspapers was forecast to fall by 3% (having dropped 7% in 2018) and by almost 8% for magazines.
In just 25 years, digital advertising has grown to account for more than half of UK advertising expenditure - online ads are expected to account for 62% of UK advertising spend in 2020, up from 57% in 2018, according to industry think-tank Credos. The UK now has the largest online advertising market in Europe and third-largest in the world behind only the US and China, while UK consumers spend more online than any other G20 nation.
Digital disruption is providing new formats and opportunities for advertising firms. It has spurred innovation in the UK advertising industry, which has developed skills and tools to deliver more targeted and relevant advertising and marketing. The UK’s ad tech sector, which produces digital tools and services for the industry, comprises more than 300 UK-companies, with over £1bn invested since 2013.
The advertising sector is prospering, but there are constraints on advertising spend and some risks. The sector is somewhat exposed to the UK’s lacklustre economic performance, which is currently hampered by Brexit uncertainty and a slowdown in the global economy. According to the Office for National Statistics, year-on-year growth in the third quarter of 2019 was just 1%, the worst growth figures in a decade. The economy narrowly avoided a recession in 2019, having shrunk in the second quarter of 2019 and posting just 0.3% growth in the third quarter.
Brexit is weighing heavily on consumer confidence. Consumer spending hit a record low in 2019, with the British Retail Consortium referring to it as the worst year on record. Consumers are holding back on big ticket purchases - new car sales, for example, fell 7% in October and were on course to end the year almost 3% lower than in 2018, according to Society of Motor Manufacturers and Traders.
Anaemic economic activity typically leads to reduced advertising spend as weaker companies rein in marketing budgets and as business confidence hits overall investment and business expenditure. Business investment is forecast to contract by 1% in 2019 and by a further 0.7% in 2020, according to the British Chambers of Commerce (BCC). A slowing labour market has led the BCC to downgrade its forecast for household consumption growth to 1.1% for 2019 (from 1.5%) and to 1.3% for 2020 (from 1.4%).
-3%
The reduction in new car
sales in the UK (2018-2019)
The advertising sector is prospering, but there are constraints on advertising spend and some risks. The sector is somewhat exposed to the UK’s lacklustre economic performance, which is currently hampered by Brexit uncertainty and a slowdown in the global economy. According to the Office for National Statistics, year-on-year growth in the third quarter of 2019 was just 1%, the worst growth figures in a decade. The economy narrowly avoided a recession in 2019, having shrunk in the second quarter of 2019 and posting just 0.3% growth in the third quarter.
Brexit is weighing heavily on consumer confidence. Consumer spending hit a record low in 2019, with the British Retail Consortium referring to it as the worst year on record. Consumers are holding back on big ticket purchases - new car sales, for example, fell 7% in October and were on course to end the year almost 3% lower than in 2018, according to Society of Motor Manufacturers and Traders.
Anaemic economic activity typically leads to reduced advertising spend as weaker companies rein in marketing budgets and as business confidence hits overall investment and business expenditure. Business investment is forecast to contract by 1% in 2019 and by a further 0.7% in 2020, according to the British Chambers of Commerce (BCC). A slowing labour market has led the BCC to downgrade its forecast for household consumption growth to 1.1% for 2019 (from 1.5%) and to 1.3% for 2020 (from 1.4%).
-3%
The reduction in new car
sales in the UK (2018-2019)
The other big factor affecting advertising spend is the underlying health of key buyers, such as retailers, travel companies and car manufacturers. These sectors are under huge pressure from economic conditions and Brexit, as well as structural challenges, such as changing consumer behaviour.
The food and beverage sector is a case in point, and is one area where we see increased risk of insolvency and non-payment. Margins in the industry are being squeezed with increased costs related to Brexit – such as higher import costs and from a shortage of migrant labour - as well as the effects of global warming – droughts and floods have hit dairy, vegetable and cereal crop yields in recent years. The food industry is also under pressure to keep costs down as consumers become more cost conscious in today’s economy.
The retail sector, in particular, is experiencing a tough trading environment from the sluggish UK economy, Brexit and the shift to online sales. Retail insolvencies hit a five year high in 2019 as a number of high street retailers shut up shop or pursued a Company Voluntary Arrangement (CVA) in a bid to restructure. Furthermore, December saw a 57% surge in retail administrations, compared to the same month in 2018, according to Deloitte.
It has been another very difficult year for retailers, with a particularly disappointing Christmas period. An orderly Brexit could alleviate some of the pressure on retailers, but insolvencies in the sector are likely to remain elevated into 2020. Longer term, however, the retail sector has a future that offers potential success to companies who can adapt, controlcosts and invest in more efficient and sustainable business models.
The other big factor affecting advertising spend is the underlying health of key buyers, such as retailers, travel companies and car manufacturers. These sectors are under huge pressure from economic conditions and Brexit, as well as structural challenges, such as changing consumer behaviour.
The food and beverage sector is a case in point, and is one area where we see increased risk of insolvency and non-payment. Margins in the industry are being squeezed with increased costs related to Brexit – such as higher import costs and from a shortage of migrant labour - as well as the effects of global warming – droughts and floods have hit dairy, vegetable and cereal crop yields in recent years. The food industry is also under pressure to keep costs down as consumers become more cost conscious in today’s economy.
The retail sector, in particular, is experiencing a tough trading environment from the sluggish UK economy, Brexit and the shift to online sales. Retail insolvencies hit a five year high in 2019 as a number of high street retailers shut up shop or pursued a Company Voluntary Arrangement (CVA) in a bid to restructure. Furthermore, December saw a 57% surge in retail administrations, compared to the same month in 2018, according to Deloitte.
It has been another very difficult year for retailers, with a particularly disappointing Christmas period. An orderly Brexit could alleviate some of the pressure on retailers, but insolvencies in the sector are likely to remain elevated into 2020. Longer term, however, the retail sector has a future that offers potential success to companies who can adapt, controlcosts and invest in more efficient and sustainable business models.
The festive period is a peak season for advertisers as retailers, travel firms and big brands look to capture a share of consumer spending. Advertising spend in the last quarter of 2019 was forecast to reach £6.5bn, up 5% in 2018, and 28% of the annual total (the value of Black Friday sales increased 16.5% in 2019, according to Barclaycard). Major food retailers and high street brands like John Lewis and Marks & Spencer battled to be the number one advertiser at Christmas, with ever more imaginative advertising campaigns.
16.5%+
The increase in the value of
Black Friday sales (2018-2019)
Some retailers have cut their advertising budgets, but advertising remains a key marketing tool and typically correlates to the health of a company. Companies that spend on advertising during tough times are more likely to survive and grow, especially at critical times of the year like Christmas. As weaker players leave the market, stronger companies will look to take market share and boost advertising spend. Amazon, for example, has invested heavily in TV and online advertising while the collapse of Thomas Cook in September has seen rival travel companies step in to pick up business.
While advertising budgets have diminished in sectors like retail, they have not disappeared. Advertising strategies continue to evolve, and in a way that will require the services of media buyers that can advise on how best to spend their budgets. Where companies have budget they are looking for smarter and more effective advertising that targets potential customers.
The festive period is a peak season for advertisers as retailers, travel firms and big brands look to capture a share of consumer spending. Advertising spend in the last quarter of 2019 was forecast to reach £6.5bn, up 5% in 2018, and 28% of the annual total (the value of Black Friday sales increased 16.5% in 2019, according to Barclaycard). Major food retailers and high street brands like John Lewis and Marks & Spencer battled to be the number one advertiser at Christmas, with ever more imaginative advertising campaigns.
16.5%+
The increase in the value of
Black Friday sales (2018-2019)
Some retailers have cut their advertising budgets, but advertising remains a key marketing tool and typically correlates to the health of a company. Companies that spend on advertising during tough times are more likely to survive and grow, especially at critical times of the year like Christmas. As weaker players leave the market, stronger companies will look to take market share and boost advertising spend. Amazon, for example, has invested heavily in TV and online advertising while the collapse of Thomas Cook in September has seen rival travel companies step in to pick up business.
While advertising budgets have diminished in sectors like retail, they have not disappeared. Advertising strategies continue to evolve, and in a way that will require the services of media buyers that can advise on how best to spend their budgets. Where companies have budget they are looking for smarter and more effective advertising that targets potential customers.
As a provider of trade credit insurance, QBE has a strong appetite for advertising industry business and have been actively growing in this area. We have a positive outlook on the sector as it adapts to digitalisation and changes in consumer behaviour. However, we also see elevated credit risk for media buyers that rely on sectors like retail, where insolvencies are at historic highs. We therefore believe that Credit Insurance can provide a much-needed level of security and peace of mind, to help your business continue to grow profitably.
Not only do we remain supportive of businesses within sectors like retail, food and travel, our considerable expertise and contacts within said industries enable our underwriters to provide our advertising clients with important insights and business intelligence, helping them differentiate between the stronger and weaker players.
As a provider of trade credit insurance, QBE has a strong appetite for advertising industry business and have been actively growing in this area. We have a positive outlook on the sector as it adapts to digitalisation and changes in consumer behaviour. However, we also see elevated credit risk for media buyers that rely on sectors like retail, where insolvencies are at historic highs. We therefore believe that Credit Insurance can provide a much-needed level of security and peace of mind, to help your business continue to grow profitably.
Not only do we remain supportive of businesses within sectors like retail, food and travel, our considerable expertise and contacts within said industries enable our underwriters to provide our advertising clients with important insights and business intelligence, helping them differentiate between the stronger and weaker players.
Sign-up to be notified about future articles from the Resilience Series, and other thoughts, reports or insights from QBE.