Supply Chain, Interrupted: The Impact on Ad Spend Across 3 Categories
Since 2019, shipping rates for global containers have more than quadrupled, and schedule delays have increased, leading to abrupt price increases. But the reason isn’t solely the pandemic—it’s labor shortages, unavailability of key equipment, and the effect of global bottlenecks.
The impact on brands is steep. As more companies face inventory shortages, they’re hemorrhaging revenue and, therefore, seeing sharp declines in advertising spend.
Let’s examine three categories touched by ongoing supply chain issues to see how their ad spend has fluctuated in the US.
Automotive: Everything Old is New Again
Disruptions resulting from Covid thrust the automotive supply chain into the spotlight. More recently, the category has drawn attention for the worldwide semiconductor shortage. As a result, questions regarding supply chain interruptions have become commonplace at press conferences and investor events for automakers and suppliers.
In terms of how supply chain snarls have impacted ad spend, the automotive category is down -6.4% from 2019. Digging further into the data, car dealerships are down -9.0% while the Aftermarket Parts and Services category, including brands like NAPA, Pep Boys, Good Year, and Firestone, is actually up +49.3%.
Why this distinction? People aren’t buying big-ticket items like cars in a time of inflation, so they’re investing in making their current vehicles last longer, and these brands are advertising to get their share of the consumer wallet.
Retail: E-Commerce Erodes Foot Traffic, Floods Big-Box Stores
The retail supply chain is primarily suffering from the increased demand for product transportation and the lack of resources to fulfill it. In terms of the effect on ad spend, department stores are down -28.8%, and specialty retailers are down 15.2% since pre-pandemic levels.
Much of this can be chalked up to the pandemic-driven rise of e-commerce, which jumped to a 19% share in 2020, a leap not expected till 2023, in addition to reduced foot traffic. Department stores might have also taken a dive because they sell many discretionary categories, such as apparel, that fewer consumers are buying during inflation.
Big box retailers like Target and Walmart, on the other hand, sell household items that everyone needs and are a category that’s seen its own steep price increases, which make up for its naturally lower margins. Meanwhile, specialty retailers can’t lean on other items in their catalogs if inventory falls short.
Grocery Store and Food: You Can’t Have Your Cake and Eat it, Too
Similar to retail, groceries and, specifically, food are having a transportation issue that hinders product getting from a farm or a factory to a supermarket. The demand is high, and it’s logistically hard to meet it, plus there are ongoing labor shortages, both in food production and grocery store work. As prices have gone up, food ad spend investment is down -4.1%. So is alcohol.
Here, it’s important to zoom out to a global lens, as backlogging in U.S. ports and shortages of certain foods in other parts of the world affect the domestic food supply chain. For example, as reported in a news story last January, baking companies in Ohio faced challenges importing spices and seeds from India, and a flood at the port of Vancouver sparked a shortage of potatoes in Japan. And let’s not forget the impact of Russia’s war in Ukraine: The two countries are responsible for 30% of the global supply for barley, 28% for wheat, and 15% for corn. All of these disruptions have spurred the USDA to create a framework for improving the food supply chain and transforming the domestic food system in general.
What’s Next as We Head into Q4
As we get into peak shopping season, we’ve historically seen the second half of the year act as a large driver of ad spend. We might see some verticals rebound in the coming months, though it could be lower than in previous years. We’ve learned from previous times of crisis and economic disruption that it pays to continue, if not increase, advertising spend—in fact, it can actually grow revenue and market share.
With fewer brands with which to compete, advertisers can raise their share of voice and stay on the minds of consumers, even if these shoppers have temporarily tightened their wallets.
Darrick Li is VP, Business Development and Strategic Partnerships, North America, at Standard Media Index.