Making predictions about the direction of the UK economy over the next few years is no easy game. However, marketers must forecast the shape and size of the markets in which they work so their companies can plot new product launches and plan for investment.
Economists are busy tinkering with their projections after recent data has suggested that the end of recession may be in sight. The famous ‘green shoots' may be showing, but marketers cannot tweak their predictions with every new piece of research. Too much research is based on woolly predictions that are of no use to marketers.
According to Mark Price, managing director of Waitrose, real signs of recovery will start to emerge next year. The supermarket is already developing products to attract shoppers when they begin trading up as the recession ends, which he believes will happen in the latter part of 2010.
However, Price is sceptical about a quick return to the heady sales of 2007. ‘What we are looking at is 2009 as a challenging year, then signs of recovery starting to show in 2010,' he says. ‘I don't know what a full recovery would look like. If we are going to get back in real terms to 2007 levels, we are looking at the Olympic year of 2012.'
To prepare its forecasts, Waitrose has looked back at its performance during the past three recessions. It then overlaid this information on data about the current recession. In the short term, Price believes that food retailers will benefit from a warm summer. He also claims that shoppers are already returning to the upmarket chain after experimenting with discounters such as Aldi and Lidl.
Price notes that areas of discretionary spend, including cars, furniture and DIY, are usually the last ones to benefit from a recovery, as these items can always be deferred. Much will depend on renewed activity in the housing market.
Manufacturers' dilemma
Retailers can look at consumer trends and stock their shelves accordingly. In contrast, manufacturers must pin their colours to the mast, decide what kinds of products people will want and start developing them in advance.
Andrew Marsden, a former Britvic marketing director who now runs his own consultancy, says this forces FMCG marketers to be firm when they undertake strategic planning for a three- to five-year period. Talk of a ‘lack of visibility' about the direction of the economy is of no help. ‘You can't not give a forecast,' he says.
‘My view remains that we may see some slight upturn by the middle of 2010, but won't really see a general improvement until the end of next year or beginning of 2011,' adds Marsden. ‘Even then, we won't return to the heady days of the past.'
He believes brands will benefit from a search for quality. ‘Thrift is in. People will look for value in the true sense, rather than just something cheap,' he says. ‘You don't experiment with money when you haven't got much.'
The difficulty for manufacturers is that they are under pressure to keep factories working at high capacity, but the over-production forces them to discount excess goods, which risks cheapening their brands. The skill for marketers is striking the balance between supply and demand.
Packaged-goods marketers tend to base their forecasts on a mixture of predictions about the growth or decline of gross domestic product (GDP), combined with supermarket sales data from analysts such as Nielsen and Information Resources.
Marsden had direct experience of the problems associated with forecasting during his time at Britvic. The soft-drinks company floated on the stock market in December 2005, amid rosy predictions for sales of fizzy drinks, only to experience a slump in this market just three months later. The company had failed to foresee consumers' switch to healthier smoothies and its share price tumbled.
Marsden says sales of dilutable drinks have jumped recently. At the same time, the amount of discounting of carbonates and colas suggests that these have been hit by a slump in demand.
Coca-Cola GB marketing director Cathryn Sleight, however, says that the company's portfolio is benefiting from the trend for entertaining at home rather than eating out. ‘When your business has been in the UK for over 100 years, you have seen and survived plenty of downturns,' she says. ‘It may not seem like it at the moment, but history shows the economy will recover. The sensible thing is to make sure you will benefit from the upturn as well as operate successfully in the hard times.'
However, Sleight adds that Coca-Cola is ‘taking nothing for granted' and is continuing to invest in advertising and marketing for its core brands.
Across the wider economy, recent figures have spurred forecasters to upgrade their predictions. ‘We have been one of the most pessimistic on the UK economy over the past couple of years, but have become more upbeat, particularly following positive data from purchasing managers,' says James Knightley, an economist at ING Wholesale Banking.
He is even willing to accept that some of Chancellor Alistair Darling's forecasts are not as wildly optimistic as many thought when he made them in the April Budget. Knightley predicts a 4.1% GDP decline this year and zero growth next, although he concedes that the chancellor's prediction of 1.25% growth next year ‘is achievable'.
However, Knightley still doubts Darling's predictions of 3.5% GDP growth in the years from 2011 on. This is because of powerful headwinds pushing against sustained growth - restricted credit, consumers saving more and paying off debt, higher taxation to make up for falling receipts and lower public spending.
Consumer spending will not return to previous levels, according to Knightley. It has grown at about 2.5% a year for much of this decade, and has accounted for two-thirds of UK economic activity. ‘We predict consumer spending to fall 3.6% this year, then a 1% fall next year, but an increase of 1.2% in 2011,' he says. ‘Then it could grow at about 2%. We are past the worst.'
Some marketing consultants are preparing for a variety of scenarios. ‘Forward-planning has become incredibly difficult because no one knows what's going to happen,' says Melanie Skotadis, a director at Added Value and former Nestlé marketer. She says some clients are being very cautious and putting new projects on hold, while others are seeking to capitalise on current trends to look for short-term gains. ‘Another group of brand owners is playing a long game, avoiding a knee-jerk change in strategy, but working in readiness for when the situation changes and filling up their innovation pipeline,' she adds.
Meanwhile, Adrian Goldthorpe, European head of strategy and innovation at consultancy Futurebrand, argues that it is impossible to foresee the course of the economy while further financial shocks are still possible. After the failure of Northern Rock in 2007, many observers assumed there would be no further bad news, only to be confronted by the collapse of Lehman Brothers in September 2008.
‘There is more than one future,' says Goldthorpe. ‘There could be an elongated period of recession with people changing their lives; however, if we get out of the recession quickly and people forget their recent behaviour, they could get back to
the old ways.'
Brands such as Nike, Starbucks and Häagen-Dazs emerged as winners after the early-90s recession, having invested and built their franchise during the hard times.
Whenever the economy starts to recover, and whatever shape that recovery takes this time round, marketers need to be ready with suitable products and the right tone
of voice. Sitting on the fence simply will not do, and marketers will need to be nimble enough to adapt to the rapidly changing circumstances.
Those forecasts...
Mark Price, Waitrose
The signs of recovery will start to show in 2010.
Andrew Marsden, independent consultant
No general improvement until the end of 2010 or start of 2011.
James Knightley, ING Wholesale Banking
Consumer spending will fall by 3.6% this year, then a further 1% in 2010. It will increase by 1.2% in 2011, after which it could grow at about 2%.
Adam Smith, Group M
2011 is the earliest I would see an upturn. Total media revenues could be down 3.5% next year, after the 14% declines likely for 2009. When the recovery arrives, media inflation could return.