Brands used inflation as a smokescreen to put up prices - are they ready for it to end?; Planets aligning for Seven-ARN merger
Welcome to a midweek update from Unmade. Today: As inflation finally comes under control, are brands ready for the next phase of consumer confidence?
And as Spheria ups its stakes in Seven West Media and ARN Media, is merger talk about to resume?
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After cozzie livs
It’s only 11 months since “cozzie livs” was nominated as the Macquarie Dictionary’s word of the year. It feels like longer. Indeed, the topic of Unmade’s first live event, back in May 2022, was marketing in a cost of living crisis.
Two-and-a-half years on, Australia’s economy is finally moving on from cozzie livs.
Yesterday came some recriminations. The long awaited report into the federal and state governments’ handling of the Covid crisis was published. It was an opportunity for Labor to blame the Coalition for fuelling inflation through badly designed incentives to keep the economy moving. Meanwhile, ultra low interest rates overstimulated the property and building sector.
When the cost of living wave arrived, few brands were expecting it. And the initial thinking was that this would mean a period of rigorous cost control as brands would be expected to help consumers weather the storm. That soon changed to exactly the opposite. For many brands, inflation proved to be cover to put up prices. Those who could, abandoned the discipline of delivering value to drive short term shareholder gains instead. And in a round of market signalling, brands followed each other in jacking up prices.
As Mark Ritson observed in Marketing Week back in July:
“If you sat in on a reporting session over the last few years at any of the major FMCG companies, you inevitably learned that demand was flat or possibly slightly down, however, profits were up – and they were up thanks to price rises. Companies that had managed to bounce along with virtually no change in price for years suddenly got very adept at increasing prices as their costs of goods continued to rise.”
But that has come at a cost, Consumers (and regulators) noticed. Qantas, Coles, and Woolworths come to mind. Rightly or wrongly, customers see them as not just reacting to inflation but driving it.
And now inflation is calming, the cover is vanishing too.
Nine’s publications today share a series of indicators around consumer confidence. The Dye & Durham Australian Market Pulse suggests that 30% of consumers expect they will be in a better financial position in a year’s time. That’s up from 24% four months ago. Meanwhile the percentage who think they will be worse off has fallen from 35% to 32%.
NAB’s consumer confidence survey showed the percentage suffering “very high” financial stress down from 33% to 29% over the last quarter. Westpac’s survey saw consumer sentiment rise by 6.2 percentage points.
And the latest quarterly consumer price index, out later today, is expected to come in just below 3% inflation, compared to more than 5% the same time last year.
The growing confidence - albeit off a low base - is grand. But the downside of the accompanying fall in inflation for marketers is they now need a new strategy. Remember when branding, not price gouging, was what drove long term profits?
Ironically, a cost of living crisis gave brands the cover to put up prices. The end of that crisis gives them nowhere to hide. They’ll need a marketing strategy, not a pricing smokescreen.
Seven West Media’s price falls at Spheria ups its stake
Seven West Media’s share price took a tumble on Tuesday, dropping by 5.9% on a day when most ASX-listed media and marketing companies were in positive territory.
The company’s market capitalisation fell to $239m. SWM’s previous post-pandemic low came in mid August when the market cap briefly fell to $224m.
Yesterday Spheria Asset Management informed the ASX that it had increased its stake in SWM to 9.8%.
At the start of the year, Spheria played a role in the ousting of Southern Cross Austereo’s chair Rob Murray as it agitated for the SCA board to accept ARN Media’s takeover proposal. The deal eventually fell over after ARN’s finance partner Anchorage Capital Partners got cold feet.
Spheria also holds a 9.1% stake in ARN Media, giving it a loud voice in any potential merger with Seven West Media. Although Seven has more debt, it is now roughly the same size as ARN by market capitalisation ($239m to $225m), raising the potential for a merger of equals at current valuations.
Seven West Media also holds a 15% stake in ARN Media, along with a further 5% economic stake held on its behalf that ownership rules prevent it from voting.
To complicate matters even further, News Corp is also an ARN Media shareholder, with a 13.2% stake.
Elsewhere on the Unmade Index, Nine also sank a little yesterday, losing 0.4%. SCA gained 1%.
The Unmade Index was almost flat, rising by just 0.2% to 440 points.
Declaration of interest: Through my super fund, I have stakes in most ASX-listed media companies including SWM and ARN.
Time to leave you to your Wednesday.
We’ll be back with an audio-led edition tomorrow in which I talk to Tony Katsur, global CEO of IAB Tech Lab, about the state of play in digital advertising.
And if you’re in Sydney, hopefully I’ll see you tomorrow at Unlock.
Have a great day.
Toodlepip…
Tim Burrowes
Publisher - Unmade
tim@unmade.media