Ad industry heading for 'V-shaped' recovery, Citigroup predicts

The advertising market is set for a "V-shaped" recovery after the financial impact of the Covid-19 crisis, a report from Citigroup has found.

The study is likely to be welcomed by the industry, which has been in turmoil since a lockdown was introduced in the UK on 23 March and led to a number of major brands pulling adspend and pausing campaigns.

In April, the Advertising Association and Warc forecast that the UK ad market would fall by 39% in the second quarter, 24% in the third quarter and 9% in the fourth quarter.

Today’s report from Citigroup said: "Unsurprisingly, lockdowns driven by the Covid-19 pandemic have significantly disrupted marketing budgets in the short term, with the vast majority of the leading advertisers we track talking about cuts in spend in the very short term.

"It is noteworthy, however, that an equally large proportion of advertisers signal that cuts are likely to be temporary and that product launches and advertising spend will resume.

"In particular, we note with interest that advertisers appear sensitive to the long-term risk associated with cutting too much. Although timing is uncertain, the scene is set for a V-shaped recovery in advertising, at least in its early stages."

Citigroup added that the disruption has also led to a demand for digital capabilities in the marketing and sales functions of a "number of large advertisers". It said that, despite the increase in people turning to traditional media, it is "probably wishful thinking to assume that advertising dollars will follow".

The report noted: "Meanwhile, the crisis has reinforced the importance of consumer-facing companies having their own data analytics/ecommerce capabilities."

A further conclusion from Citigroup is that FMCG is outperforming other segments and will continue to do so in recovery, while healthcare and pharmaceutical companies are also "well-placed".

Citigroup said: "The significance of this is for the agency groups under our coverage (in particular in Europe) where an overweight position in FMCG, which has historically been a headwind, should start to help."

WPP and Publicis Groupe are among the groups that could benefit, the bank added.