The battle for customer loyalty reached a turning point in 2010, with supermarkets splashing out unprecedented sums on advertising. Rob Gray analyses The Grocer’s first-ever survey into advertising’s biggest spenders

There is a war raging. It's being fought over the hearts, minds and wallets of shoppers on our TV screens and in the pages of our newspapers.

And the charge is being led by Britain's biggest supermarkets, which last year significantly upped their advertising budgets in a bid to woo shoppers, according to research into the country's biggest advertisers carried out exclusively for The Grocer by Ebiquity.

The research shows a momentous swing in the balance of power, with retailers shelling out more on advertising space than fmcg brands for the first time ever. In 2010, retailers poured £1.73bn into advertising, up 16.6% on 2009, compared with brands' spend of £1.69bn, up 7.9%. The tipping point came as Britain's 10 biggest supermarkets forked out £417m on advertising during the year, up 10.4% on 2009. So why have the multiples been so aggressively advertising and what does it mean for the future of the market?

The figures relate to the space bought by retailers and brands in TV, press, cinema, radio and outdoor media. Retailers now account for one in every five pounds spent on advertising space in Britain and the big four supermarkets dominate, making up 18% of total spend. Five of the six biggest spenders in retail are grocers third-placed furniture giant DFS is the only exception and, tellingly, the only player among the half dozen to have cut its budget.

All of Britain's 10 biggest supermarkets bar one (Iceland) increased their advertising budgets last year. Tesco is the country's biggest spender on advertising space and increased spend by 9% last year, forking out £102m. With new CEO Marc Bolland backing marketing director Steven Sharp, M&S delivered the largest year-on-year increase of any of the biggest retailers 59% to £63m.

"Unlike many other advertisers, supermarkets profit as much in tough times as they do in good times," explains Craig Mawdsley, joint head of planning at advertising agency AMV BBDO, whose clients include Sainsbury's. "We can all choose to drink fewer lattés, postpone replacing our family car, eat out less often, but we all still need to shop for groceries. For Sainsbury's, in particular, the strategy of high ad-spend has proven especially successful through the recession when teamed with smart marketing to create universal appeal in-store."

On the suppliers' side it's a different story. Six of the top 10 fmcg advertisers actually cut their spend. Coca-Cola popped up to the number one spot by virtue of a 6.6% reduction, leapfrogging Kellogg's Special K, which slashed its advertising investment by nearly a quarter. Conversely, Danone Activia rocketed up the rankings to third on the back of a 27.6% rise in spend while Galaxy more than doubled its spend on the previous year to £12.8m, putting it in seventh place.

It's the increasing dominance of retailers particularly the supermarkets that's defined the past few years in advertising, however. Healthy margins, high penetration and frequency, and national reach, makes the supermarkets particularly ad-friendly businesses, says Mawdsley.

He adds that only telecoms comes close to the supermarkets' ability to exploit the various forms of mass media to their full potential. And press advertising is particularly valuable for them.

"Supermarkets themselves and retailers in general are single-handedly propping up a few of our national newspapers Richard Desmond will feel a chill wind if Tesco, Asda and Sainsbury's suddenly decide the national press doesn't deliver decent ROI," says Mawdsley.

That seems unlikely however. In 2010 the supermarkets accounted for almost 20% of all advertising in tabloid and mid-market titles in 2010, up from roughly 10% in 2007.

The attractions of press advertising, used by the supermarkets primarily to drive footfall, are clear.

Newspapers allow retailers to reach a large audience quickly, and their flexibility allows for the swift adjustment of messages and prices. Consequently, a lot of grocery press advertising features pricing-driven 'call to action' messages. The majority is booked to appear in the latter part of the week with the intention of generating footfall in store over the weekend. Protecting and building market share is a prime objective.

Television advertising, meanwhile, is used by the supermarkets to cement their brand messages. While the leading fmcg brands spent, on average, three quarters of their budgets on TV last year, the average for supermarkets was just 44%, with 52.4% being allocated to press and outdoor, and radio ads mopping up the rest. Significantly, in 2010 Asda invested some £6.5m in branding ads as distinct from product specific ones a massive rise on the £0.6m it spent in 2009 as overall ad spend rose to £96.5m. Most of this activity focused on its price comparison basket and Refund the Difference campaigns. The impact on sales was negligible (see box).

Conversely, the money spent by Waitrose which doubled its budget to £22m was well spent publicising the introduction of its Essentials range, the Tesco price match campaign and, in particular, its deal with Heston Blumenthal and Delia Smith.

"Our strategy has been incredibly effective," asserts Waitrose head of marketing and communications Sarah Fuller. "The investment in that campaign has been instrumental in boosting like-for-like sales. There's £50m in incremental sales that can be attributed to the campaign. When we look at transactional data related to recipe buying we can see that 1.3 million customers responded to the campaign."

And press played a particularly important role in Waitrose's media schedule because, as Fuller puts it, the brand's relatively upmarket audience tends to "underindex" on commercial television viewing, though, of course, it was the broadsheets that benefited the most in its case.

The supermarket battle has extended far beyond the confines of food and drink. The dramatic diversification in product range implemented by the top supermarkets is mirrored in their advertising. Asda more than doubled its investment in advertising electrical products to £3m last year, while Tesco tripled its spend in the category to £3.6m.

"Last year the big four supermarkets doubled their advertising spend on technology and electrical products to more than £14m," says Ebiquity's Andrew Challier. "This gave supermarkets a significant share of voice compared with specialist retailers like Comet, who spent £19m."

This upping of the ante has not gone unnoticed by the electrical specialists. Comet and Currys/PC World spent £17m more on advertising in 2010 than they did in the previous year. Competition in this category has intensified and has the potential to spark a full-blown price war.

"Grocery retailer advertising spend has marched upwards pretty much every year for the past 15, and shows no sign of abating," says Danny Donovan, MD of retail at media agency MediaCom, who until recently worked at Tesco's media buying agency. That's because the outlay is relatively small. "The big four still put a relatively small proportion of turnover into advertising, so arguably there's room for growth, but more likely Asda and Tesco have topped out and the others will gain some ground in the next couple of years."

Tesco's UK ad spend in 2010 stood at just 0.24% of its UK turnover of £33bn. Spend by M&S was relatively high at 0.65% while, even after doubling its spend, Waitrose's was 0.44%. Meanwhile, fmcg brands have to f0rk out a lot more on advertising as a proportion of annual sales. The biggest spender, Coca-Cola, devoted 1.6% of its UK off-trade sales to advertising. Kellogg's Special K spent a whopping 14.5% of its 2010 sales on securing advertising space.

Manufacturers also need to meet the retailers' increasing demand for promotions, which limits the brands' ability to invest in advertising and marketing.

As a result, retailers generally see higher ROI on spend than fmcg brands due to their turnover, and the advertising effect on a wider basket as opposed to just a single product purchase. Improvements in econometrics and advanced sales analytics for retailers have shown them how to improve further. And Donovan therefore takes the view that, with retailers having overtaken brands in terms of spend, the trend is unlikely to be reversed in the near future, irrespective of economic climate.

There is also growing co-operation between retailers and fmcg manufacturers, but tensions abound. Brand owners have some deep-seated concerns as to the power of the big supermarkets and the potential damage their advertising clout and discounting power may have on brand equity.

"Retailers have been getting brands to fund their advertising for many years and this has increased along with the pressure to run more and more promotions," explains Donovan. "For the big four this [funding] will make up a significant chunk of the supermarket's press advertising budget. The retailer takes this money and spends it supporting the brand's promotion, usually in conjunction with other producers.

However, brands are taking some of this control back, and we are seeing more exclusive promotional ads from brands combining with an 'available at' message.

The stronger retailers still exert a lot of influence over the look and feel of these ads, and obviously how their logos are used, Donovan adds. "But this still makes up only a tiny percentage of the spend in the market."

The £1.69bn spent on advertising by fmcg brands was a return to 2008 levels, following a dip last year. The top 100 brands represent just 43% of this spend, demonstrating the vast number of brands jostling for recognition. Household remains the most heavily advertised category despite manufacturers spending 7% less on this than in the previous year.

Procter & Gamble remained the biggest overall advertiser, upping its spend 15% to almost £190m. Spend on its Max Factor brand accounted for the largest share, with the new Ariel liquid also heavily promoted. And its Pringles Originals and Super Stack products benefited from £5m in extra advertising support.

In the meanwhile, spend by Unilever, L'Oréal, and Reckitt Benckiser was down.

Conversely, Mars was responsible for much of the growth in confectionery, spending an additional £18m across its brands in 2010. A lot of investment went into buying television spots for Galaxy, as it sought to promote its Ripple and Bubble variants, more than doubling spend on the brand. L'Oréal spent an additional £7m advertising three products for the first time: Volume Million Lashes, Youth Code and Collagen Micro-Vibration Eye.

Lindt and Walkers both substantially increased ad spend, while Tresemmé brought its spending back up to 2008 levels after cutting back dramatically last year. Spend in the dairy category grew by over a fifth as the big players locked horns, especially in terms of investment behind yoghurt and fromage frais brands.

A 20% growth in alcohol spend was driven primarily by an increase of £7.5m in beer and lager advertising, although paradoxically the two top-spending brands Stella Artois and Carling actually cut their spend year on year. Guinness, by contrast, upped its spend by nearly 20% to almost £8m, just shy of what Carling spent.

And Strongbow's ad budget rose by 37%. As it pledges its allegiance to the responsibility deal, will it go down?

Unilever has invested heavily in a number of its leading brands, notably Dove by 50% to almost £13m and spending three times as much on Lynx as in 2009. "We are looking to increase spend across the portfolio," says Unilever UK & Ireland marketing VP Matt Close.

"We think that's critically important at the moment. We need to show that our brands are better than others. The challenge for us as brand owners is getting the media mix right. And we're putting a lot of effort and money into marketing mix modelling." With brands such as Lynx, he adds, a lot of work is being done to connect with the young target demographic through digital channels while at the same time creating engagement via "iconic" TV commercials.

In contrast with the supermarkets, the big fmcg advertisers continue to favour TV for brand-building purposes. Roughly £7.50 of every £10 spent on advertising by the top 100 brands goes on TV and the last year has even seen an escalation of ad rates driven by the success of shows such as ITV's Saturday night favourite The X Factor.

Between them, the top 100 increased their TV spend by £110m. There's potential for greater growth, too, after a relaxation in Ofcom rules in February allowed paid product placement on UK commercial TV for the first time. Nescafé was first to take advantage, paying a reported £100,000 to have one of its coffee machines placed on ITV's This Morning show for three months.

Others in TV are having a tougher time. The ban on high fat, salt and sugar foods being advertised on children's TV, which came into effect in November 2006, has taken a hefty toll. Turner Media Innovations the ad consultancy arm of Turner Entertainment, channels including Cartoon Network and Boomerang says kids' TV revenue from food advertising was £17.1m in 2005. By 2009 this had plunged to just £4.4m.

"About 20% to 25% of our revenue came from food in 2005 and about two thirds of that was not compliant under the new rules," says TMI sales director Andrew Mallandaine. The rules led to a mass exodus of food brands whether compliant or not from kids' TV. There are signs a recovery could be on the way however, with 2010 revenues up 10% to £4.8m as smaller players move on to kids' screens.

"The changes have definitely opened up the market," says Mallandaine. "There's an opportunity for companies without the spending power of Kellogg's and Nestlé to steal market share. For example, we've seen Innocent Smoothies really take to kids' TV and increase sales as a result." The ban has also led to the development of products such as Coco Pops Choc 'n' Roll, which comply with the new rules, and more positive attitudes among parents about food ads to children, according to TMI research. So there's some cause for optimism.

Commentators suggest cinema, which isn't covered by the same rules as TV, has also benefited from food's abandonment of kids' TV. Cinema sales houses Digital Cinema Media and Pearl & Dean say fmcg brands spent £63.4m in total on cinema advertising in 2010.

DCM sales director Jeremy Playle claims ads for a total of 212 fmcg brands appeared on the big screen last year as the advertising battle hotted up in cinemas. "When Cravendale added cinema to its overall campaign, brand appeal shifted by an additional 18%," he adds. "As a result, both Anchor and Lactofree advertised for the first time in cinema."

So what will happen to ad spend in 2011? With the economy stuck in neutral, the stakes have never been higher. Supermarkets and fmcg will continue to work side by side, and at the same time in competition. And while a gap may indeed open up, the power struggle is still finely balanced.

Let's not forget, it's an fmcg manufacturer that is, in fact, the UK's biggest advertiser. How often can one say Tesco comes fourth?

Gillette Fusion
Procter & Gamble splashed the most cash of all advertisers and its Gillette Fusion brand won the most spend. Recent years have seen the five-bladed flagship pushed by Roger Federer, Thierry Henry and Tiger Woods.

With Tiger on the naughty step after the collapse of both his marriage and his game, Gillette changed tack, signing up rugby giants Jonny Wilkinson and Brian O'Driscoll. P&G says it was money well spent, with the brand going from strength to strength.

Creativity: Three stars (out of five)
Effectiveness: Four stars

Lennon and McCartney. Astaire and Rogers. Hale and Pace. Waitrose added its own duo to the list of entertainment greats as ageless icon Delia Smith teamed up with mad-scientist gastro-gnome Heston Blumenthal.

The investment paid off spectacularly, with sales of ingredients featured in ads soaring. The 'Delia effect' has long been recognised but mixing it with Heston's quixotic charisma was advertising alchemy, driving reported incremental sales of £50m.

Creativity: Four stars
Effectiveness: Five stars

Only three things in life are guaranteed: death, taxes and Asda bragging about being cheap as chips. Spruced up with a promise to be a full 10% cheaper than its rivals this year, the original guarantee was advertised with a rather serene slow-motion affair, voiced with gravitas by heavyweight thesp John Shrapnel.

Quite a departure from the low-rent jollity of its posterior-slapping predecessors. Didn't do much good though - full-year sales climbed by just 0.6%.

Creativity: Two stars
Effectiveness: One star

Marks & Spencer

No-one would deny the "Not Just..." slogan was past its sell-by date, but the new ads featuring Caroline 'Everymum' Quentin were not to everyone's taste.

To a chintzy soundtrack, Quentin salivates over a mouth-watering series of tabletop tableaux, before delivering the value payoff. And the ads appear to have paid off, with like-for-like food sales up by around 2% in 2010. But how much of this was Quentin and how much the stunning and prolific burst of NPD?

Creativity: Three stars
Effectiveness: Three stars

Stella 4
If Stella 4 was created to rid the AB InBev flagship brand of its bruising reputation, how apt that change was the theme throughout its 2010 campaign.

Mirroring the transformation the brand hoped to effect, each iteration featured a Euro-cad becoming increasingly suave via miraculous costume changes either to bag the girl or, even better, get his hands on Stella Phwoar's glistening pint of instant sophistication. The cam­paign has helped reinvigo­rate the Stella Artois brand.

Creativity: Three stars
Effectiveness: Four stars

Yeo Valley
Yeo said it splashed out £5m on its biggest ever ad splurge. Ebiquity estimates as much as half of that went to ITV for securing seven Saturday night ad breaks during The X Factor for its rapping farmers (Yeo doesn't appear in the Top 100 list because it agreed a special rate for the deal direct with ITV).

The rapping farmers' iTunes download might not have troubled the hit parade for long but within weeks of the launch Yeo was celebrating an annualised £10m sales boost.

Creativity: Four stars
Effectiveness: Four stars

Birds Eye
Perhaps it was melting ice caps that first drove Birds Eye's puppet polar bear into the freezers of unsuspecting shoppers.

Voiced by Willem Dafoe, the implacable bear was on hand to warn consumers about the perils of poor-quality chicken and fish. Dafoe's hypnotic voice and the bear's unsettling performance may have been a little too freaky for some, but in a highly challenged market, its share has increased by 6.9% since the campaign launched.

Creativity: Five stars
Effectiveness: Three stars

Coke Zero
It's not just the drink that's refreshing: with Coke enjoying an overall sales uplift of 8.3% over 2010, attention has turned to Coke Zero, the straggler in terms of growth, up 4.7%.

The new campaign is the 21st Century's answer to the Milk Tray ads of old complete with boiler suit-clad all-action hero, ditsy damsel in distress and a chopper full of special forces goons. Backed by a raft of innovative online activity to keep the nerds happy, it looks like another winner.

Creativity: Three stars
Effectiveness: Four stars

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