Agency Net Revenues: Down to Earth

Lest you think a 9.4-percent revenue increase among promotion agencies is a bit too rosy, consider the fact that the figure represents the segment’s lowest growth in a decade (see chart).

Also consider the fact that growth was far from equal: Of 120 agencies responding to this year’s Promotion Trends survey, 28 percent reported a decline in revenues; only 5.9 percent of respondents in 2000 and 8.7 percent in 2001 reported declines.

In general, the larger the agency, the harder it was hit by the economic downturn — although many small shops suffered as well. Thousands of positions were cut industry-wide as the “staff-for-growth” strategy that had been in place gave way to pragmatic plans focused on cutting overhead.

In a year that saw a number of major agency reviews, the two with the most significant impact were those conducted by Burger King and Frito-Lay. The former tapped DraftWorldwide, Chicago, to help steer strategy (and later dumped long-time partner Alcone Marketing, Irvine, CA); the latter dropped Frankel in favor of Tracy Locke Partnership, Wilton, CT, thereby placing its account in the same hands as sister Pepsi-Cola Co.’s.

The latter move (announced in December) was a blow to Frankel, Chicago, which had already eliminated more than 200 employees in three rounds of layoffs. Another kick came in January, when the U.S. Postal Service initiated a review designed to consolidate all marketing activity at one agency working on a “pay-for-performance” model.

Although it wan’t sparked by the recession, the demise of once-massive Cyrk-Simon Worldwide was the biggest news of the year. Inexplicable business moves had sold off most of the Cyrk business by the beginning of the year; the McDonald’s gamepiece scandal all but wiped out the Simon side by the end.

More reflective of the future, however, was London-based Allied Domecq’s decision last fall to name marketing services shop 141 Worldwide as a global marketing partner while assigning brand-specific work to several ad agencies.

No Money Down

Faced with plummeting ad dollars and subsequent internal woes, most of the industry’s top consolidators (Interpublic, WPP, Aspen Marketing, Hawkeye Communications, Publicis) were inactive in 2001.

Omnicom Group, New York City, proved to be the notable exception, acquiring Davie-Brown Entertainment and The Promotion Network. It also put GMR Marketing ceo Gary Reynolds at the helm of Radiate Group, which kicked off a roll-up strategy with the February 2002 purchase of C2 Creative.

Elsewhere, Frankel (owned by Publicis) gained an East Coast presence and field marketing capabilities by acquiring Creative Alliance; Gen Y media company Alloy, Inc., New York City, bought Target Marketing & Promotions and marketing services agency 360 Youth (the latter from MarketSource Corp.); and Vertical Mix Marketing was acquired by GEM Group, which had been bought by U.K. entertainment management company CSS Stellar earlier in the year.

In February 2002, Promotions.com was acquired by online women’s portal iVillage.com for $3.9 million in stock. The deal began a new chapter in the ongoing saga of the agency, which (like many of its Internet-based brethren) burst loudly onto the scene in 1999, then nearly imploded in the dot-com crash of 2000.

Meanwhile, the Fairfield County, CT, agency corridor experienced a mini-wave of start-ups. David Marchi and John Kocis of TLP joined with a pair of Ryan Partnership execs to launch Concept One, while fellow TLPer Jordan Bochanis joined with former b. little & Co. colleague Lee Rogan to open Bochanis Rogan Zoom.

A Good Run

SNAPSHOT

• Net revenues grew 9.4 percent despite the recession.
• Clients switched agencies more for financial reasons than quality issues.
• Consolidators were mostly quiet.