Inside the In Focus List
By : Justyna Wrobel
Slumped: Leo Burnett Warszawa hopes the lean years are over.
Ad agency Euro RSCG New Europe-Poland's acquisition last month of two local marketing services companies is the latest example of a growing trend among foreign firms to buy up local concerns.
For Euro, a subsidiary of Euro RSCG Worldwide (see the List), the purchase of majority stakes in marketing companies Dialog Galicja and Marketing House aims to restore a market share the agency has lost in recent years. After ranking as one of the leading companies in its sector at the beginning of the 1990s, Euro saw its slice of Poland's ad market erode. In 2000, its revenue dropped by 17.4% to zl. 12 million ($2.73 million) compared with the previous year.
While Euro refused to disclose the terms of the new merger, the agency's managing director, John Domas, said the move would round out the agency's ability to meet increasingly varied client demands.
"We want to be the first group to provide really integrated (marketing) communication," he said.
Dialog Galicja, the leading direct marketing company in Poland, has changed its name to Euro RSCG Dialog, and Marketing House, a provider of database management and below-the-line services, has been renamed RSCG Marketing House.
Industry players have generally applauded the move. Pawel Kastory, president of Corporate Profiles DDB, said it has been a "long time since Euro RSCG was a good agency." Now, however, "the best decision was taken because the Galicja Group is the best possible choice," he said. Kastory said the acquisition would strengthen Euro's market position, mainly because of Galicja Group's below-the-line services.
"With the two acquisitions, the new companies, Euro RSCG Dialog and Euro RSCG Marketing House, will become very significant players," Kastory said.
Elsewhere, the trend for market consolidation is continuing as local and international firms merge amid disappointing growth. Earlier this year, the local arm of Bates ad agency merged with Testardo, a Polish ad company. Last year, FCB merged with Ad Fabrika, while Scholtz & Friends formed an alliance with Kennedy Communications.
"International agencies demonstrating weaknesses will probably want to inject energy into themselves by (merging with) successful local agencies," said Neil Selby, managing director of D'Arcy Masius Benton & Bowles. "The big international agencies want energy and the energy guys want cash flow and opportunities for development and growth."
It's a sensible plan, insiders said, especially since ad spending is still in free fall following the worst year in Poland's 11-year-old advertising industry.
"Last year was a very difficult year for the Polish ad market because it didn't report any growth," said Jaroslaw Ziebinski, managing director of Leo Burnett Warszawa.
According to media house MediaCom Warszawa, even though ad spending last year reached zl. 7.9 billion ($1.8 billion), 11.4% higher than in 1999, the market isn't as healthy as these figures may indicate. When inflation and the huge incentive discounts offered by media companies are taken into account, the market has actually dropped, advertising analysts said.
As a result, agencies are being forced to adapt or risk having to shut their doors. "It forced ad agencies to change their ways to manage their business," Ziebinski said.
Tomasz Englert, managing director at MediaCom, said the average brand budget dropped by 6% last year compared to 1999. Even so, agencies are reporting that brand awareness among clients is on the rise, in part due to demand for marketing services, which differs from classical advertising.
Wolfgang Ullrich, the managing director at Grey Warszawa agreed. "On one hand, the client would like to save money, but on the other hand he would like to have a close dialogue with the consumer," Ullrich said. "That means that the client would like to contact his customers in different situations, not only through advertising."
Grey Warszawa also turned to integrated marketing last year, spinning off two new units dealing with below-the-line services (G2) and Web advertising (Argonauts). Grey Warszawa Group reported a 10% revenue plunge last year, showing sales figures of zl. 30.8 million ($7 million).
Not every agency has seen its sales sour, however. Corporate Profiles DDB, which reported a year-on-year sales increase last year of 38% to zl. 55 million ($12.5 million), was the fastest growing agency in 2000.
"We entered some new consulting fields, such as brand advisory and design," Kastory said. "This allowed us to gain new clients and generate bigger revenue." He said the company also delved into Web consulting, which opened the door to clients such as financial portal Expander.pl and Gazeta Wyborcza's Internet venture Gazeta.pl.
