A wholesale ban on alcohol advertising will not have a significant effect on dealing with the nation’s tendencies to abuse alcohol, says a comprehensive research study by Econometrix, commissioned by the Industry Association for Responsible Alcohol Use, which was released this week.
This is the first post in a series that will look at various issues covered in the report.
While the study acknowledged South Africa has a problem with alcohol abuse, a situation which delivers “an enormous economic, social and emotional cost to the economy”, it also said “an advertising ban will not have the intended impact of reducing the per capita consumption of alcoholic beverages. As such, further research needs to be done to determine which policies will be effective in reducing the abuse of alcohol”.
Government, particularly the department of health, and the department of social development, see alcohol as a major risk factor for health and social issues ranging from domestic violence to violent crime. The health department is vocal on how alcohol impacts on health from HIV, TB, cancer, and heart diseases to alcohol-related deaths. It says there is a strong need to reduce costs – and therefore to concentrate on risk factors, of which alcohol is a major risk factor.
On the flipside, the alcohol industry is worth billions to the economy, and employs a substantial number of people through upstream and downstream industries. Econometrix reckons the industry employs close to 12 000 people and boosts the South African economy to the tune of R7.412 billion, which would be lost if an alcohol advertising ban is enforced.
“The total potential advertising expenditure of the alcoholic beverage industry is estimated at R4.386 billion (R2.8 billion in advertising expenditure from the domestic and R1.15 billion from international alcoholic beverage companies, plus R98.8 million estimated spend by the wholesale and retail sector and R322.5 million by sport and other sponsorships),” the report says.
A snapshot of the economic outlook shows employment highly skilled employees will be reduced with -2 573, skilled employees with -5 288 and semi-skilled and unskilled will be reduced with -2 779. Total tax income will decrease by R7 783 million and exports will decrease with R225 million and imports will decrease with R304 million.
The business of sporting events would be particularly hard hit, with South Africa’s ability to host international sporting events hampered. Sports sponsorships lost are estimated to be between R350m-R700m.
“We believe that the potential ban on alcohol advertising will have significant anti-competitive effects. It is argued that the ban on advertising in the alcohol industry could potentially lock-in the current market structure, which is inefficient, perpetually. This would effectively strangle smaller companies with limited brand recognition,” says BMI Sport Info, an independant research company that deals exclusively with the sport and sponsorship market.
“The resultant anti-competitive pricing strategies would result in net social cost and a reduction in net social welfare. Over and above the direct anti-competitive implications, the potential ban on alcohol advertising is likely to have several adverse consequences for the socio-economic transformative process.
“From a social perspective, the alcohol industry has invested significant amounts of capital into sports development programmes, which have contributed to social transformation and the advancement of marginalised groups in South Africa. The advertising ban threatens further advancement of this process. The industry has also invested significantly into the social transformative process for responsible alcohol consumption and the risks associated with illegal consumption. The ban on alcohol advertising will curtail this process, which could result in adverse consequences on social behavioural trends.”
ffThe National Association of Broadcasters says it is “not convinced that all the advertising revenue (due to a ban) will be lost, due to the ‘replacement effect’.
“But a ban would still have a big impact, as alcohol ad spend forms a greater portion of the inventory. If this inventory is not sold to alcoholic beverages companies – this would reduce the price of average inventory (advertising space). This could allow more players, who could not previously afford to, to then come back in this slots/space. Broadcasters would get less per slot but not lose all their revenue as other players would fill in the slots but this comes in with the competitiveness issue and whether it inhibits and promotes competition in terms of advertising sales is uncertain. If a ban comes into effect, major companies would do more promotional type advertising and BTL advertising would increase significantly,” it told Econometrix.
The report was clear that losses of the SABC are expected to be huge, and that “this may have implications for public service requirements of the broadcaster. The lack of revenue could possibly impact on the production of local content programming”.
Advertising industry body, the Association for Communication and Advertising (ACA) said a ban would affect competition “since brand awareness would fall away and therefore there is no opportunity to learn of new brands”.
It said the entrenched brands “would be constantly advertised and their position will be consolidated. Experiential events would increase (such as boat cruises outside of domestic waters). These types of events are very costly and only the big brands would afford this space, and this will therefore create anti- competitive behaviour. It is uncertain whether alcohol companies will invest in finding other solutions or rather invest and fund in distribution instead. There has been a loss in the region of R12 billion on illegal smuggled cigarettes since the tobacco ban, and there might be a similar impact on the alcohol industry.”
The study also researched the impact on transformation, which would be affected by an advertising ban. The ACA says the advertising sector “has always been ahead of the transformation curve (ACA’s BEE scorecard is even more stringent than DTI’s generic scorecard. ACA’s scorecard requires 51% black ownership, where the requirement or norm is 26% – DTI).
“These targets are compulsory and increase transformation. If advertising agencies have to close down (due to the ban), transformation will be affected, because these agencies are all locally owned/emerging with more than 50% (of the 120) all servicing alcohol ads in one way or another. The alcohol industry is a significant client in all disciplines of advertising (above the line, below the line, through the line, PR, digital, events, and sponsorships).
Continental Outdoor believes the out of home media sector is a “substantial BEE environment: we sub-contract all bill-posting out to small contractors – in this way small business development increases. All BEE companies that do billboards would thus be affected; and all bill-posting are done by BEE companies. Transformation will be affected by the advertising ban”.
Media agency, The MediaShop believes a potential ban on alcohol advertising would have “asymmetric financial consequences for bigger and smaller players in the industry respectively. Drawing parallel from the experience from the tobacco advertising ban, it is believed that the ban on alcohol advertising would generate a decline in consumption volumes, at least in term. This anticipated decline in industry volume sales would further weigh on profitability metrics for smaller businesses in the industry as revenue growth is further constrained.
Overall, the Econometrix study highlighted the impact of a ban:
Job losses in manufacturers, distributors and wholesalers (their marketing, PR & design areas);
Job losses in advertising and media companies and downstream industries of advertising sector.
Loss of income and possible closure of many downstream industries.
Companies will grow “below plan” as they cannot grow market share.
Total sponsorship will be lost (R350m-R700m).
Negative impact on financing of major and peripheral sporting codes.
South Africa’s ability to host international sporting events will be hampered.
Negative impact on sports development and transformation.
Negative impact on music, arts and cultural festivals.
BTL advertising (more expensive) will increase – this will put pressure on consumer prices, and have anti- competitive impact (as only bigger players can afford BTL ad spend).
Lock in market shares of current big players.
Impossible for new/emerging/BEE/small players to enter market (increased barriers to entry).
Detrimental impact on growth of BEE and SMME companies, and therefore transformation of industry.
Bigger players will compete aggressively for retail shelf space.
Consumers will be less informed; have lack of choice.
Negative impact on product innovation.
Industry will not be able to advertise “responsible drinking”
Inability to broadcast overseas programming containing embedded liquor sponsorship/branded content.
Increase in illegal non-branded liquor market (which will lead to an increase in abuse). Thus no impact on abuse in poorer areas (mainly consume non-branded products). In South Africa, possibly more than one quarter of all alcohol consumed is unrecorded – this type of liquor is produced, distributed and/or sold outside formal channels. There are few, if any, controls on this market. The logical deduction from this is that an outright ban on advertising and excessive price increases on legal alcoholic beverages could actually increase the illegal industry, cause an increase in consumption of illegal alcohol and could, as a result, increase alcohol abuse together with its associated costs.
Government and the industry are “in consensus that alcohol abuse is at unacceptable levels. The current costs are unacceptable”.
But, research shows that “virtually all scientific evidence demonstrates that alcohol bans have no or little impact on overall alcohol consumption. Restrictive bans on alcohol advertising in many countries have not rendered the desired result, i.e. lowering the adult per capita consumption,” Econometrix says.
“The fact is that there is more than sufficient inconsistency, as well as such a strong body of research denying the strength of any link, that it would be an incorrect policy decision to introduce a comprehensive ban on alcohol advertising in South Africa, as a total ban is likely to have limited impact on total real consumption and no impact on per capita consumption.”