WPP: Brand Agencies Confront 'Slowdown,' China Critical

Martin-Sorrell

New markets, new media and consumer insights will account for much of WPP’s strategic focus going forward, according to company CEO Sir Martin Sorrell.

Sorrell, speaking at the Goldman Sachs Communacopia Conference in New York Thursday, said that rapidly growing emerging markets now account for 30% of WPP’s revenues, which totaled more than $16 billion in 2011. Digital revenues account for nearly a third of the holding company’s revenues, while its research unit contributes about 25%.

Sorrell said the company’s advertising businesses were performing “pretty well” so far this year, while the media operation is doing “very well.” The company’s digital segment is performing somewhere in between. The consumer insights sector, which was hit hard during the recession, is improving.

The holding company’s branding agencies have experienced a “slight slowdown,” he said.

As to market conditions, Sorrell mused that “geographically there seems to be two planets,” with one comprised of the slow growth U.S. and Western European countries and the other consisting of faster-growing markets around the rest of the world. At a recent meeting of business leaders, Sorrell reported, the consensus was that Western Europe would continue to experience slow growth for the next four or five years.

Sorrell also cited several wild cards that could impact the industry in the coming months, including a potential new round of inflation, the future economic health of China, the political tiff over Iran’s nuclear buildup and the so-called “fiscal cliff” that the U.S. government will have to confront at the start of 2013.

“Inflation will be important,” said Sorrell, noting that a rise in prices could impact retailers significantly.

The data has been mixed as to what extent the Chinese economy, which had been booming for years, has slowed down. From WPPs vantage point, Sorrell observed, “we’re seeing no slowdown in China.”  That said, he added: “That can’t go on forever.” Indeed, WPP’s own GroupM recently lopped about three percentage points off its ad spend growth projection for the China in 2012.

Regardless, China remains an important market for WPP, which generates $1.3 billion in revenue from it annually. He pointedly contrasted WPP’s experience in the market with Omnicom’s, which was outlined by company CFO Randall Weisenburger at the Goldman conference on Wednesday.

Unlike Omnicom -- which conducts just about all of its business there with multinational companies based outside China, and little if any business with local Chinese companies -- such firms constitute about 40% of WPP’s business. Weisenburger said that Chinese companies weren’t interested in paying for the high-end services offered by Omnicom shops.

“It’s a fallacy to say they aren’t willing to pay” for such services, said Sorrell of the Chinese firms. “Many are looking at the world stage. They are starting to wrestle with issues like brand loyalty, and they are willing to invest in branding.” Part of the trick to getting their business is to hire local talent that understands the market, he said.

WPP continues to devote about one-third of its cash flow to acquisitions, such as its recent purchase of digital shop AKQA. Sorrell took a swipe at WPP rival holding company Publicis Groupe, which he said “messed things up” in Brazil and India by paying prices that were too high for agencies in both markets.

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1 comment about "WPP: Brand Agencies Confront 'Slowdown,' China Critical".
  1. Mike Einstein from the Brothers Einstein , September 23, 2012 at 10:18 a.m.
    The slowdown on the branding front is the result of too much fragmentation and the growing inability to generate effective, scalable audience reach, period. Case in point: fifty years ago, the Kellogg's Corn Flakes folks knew with certainty that they could and would reach 60 million Americans each week as a sponsor of the Beverly Hillbillies. No DVRs, no feeding frenzy in the commercial breaks (there were only 2-3 other channel options), no second-screen addictions to combat... More than 3000 years ago, the ancient Vedic Seers observed that we have a tendency to become our attentions. No wonder they called them seers.