TBWA Toronto offices pictured here in 2008.Fernando Morales/The Globe and Mail
Is the advertising agency business shrinking?
Perhaps it should be. Some agencies are consolidating, as the industry that creates ads grapples with shrinking margins and with marketers increasingly under thrall of procurement departments' push to cut costs. This week, agencies Juniper Park and TBWA Toronto, both owned by advertising and communications agency holding company Omnicom Group Inc., announced that they are merging into a single agency called Juniper Park\TBWA.
It's the second time recently that agencies have merged in Toronto. Just last month, rival holding company WPP PLC folded its Young & Rubicam agency brand in Toronto, moving that agency into the offices and under the name of Taxi Canada. The move is expected to create "a more effective and efficient advertising operation," Y&R Group global chairman Peter Stringham said in a statement at the time.
Marketers are asking more from their agencies, said Juniper Park chief executive officer Jill Nykoliation, who will lead the new combined agency.
"Just a few years ago, everyone wanted [smaller boutique agencies]. What clients want is deep expertise in each discipline. Not long ago, the perception was that you had to go to different offices to do that. But you have to manage all those relationships; it's a lot of work," she said. "They still want that deep expertise … but it can be in one place."
TBWA brings clients including Petro-Canada and Nissan, while Juniper Park clients include Canadian Imperial Bank of Commerce, BCE Inc.'s retailer The Source and its Virgin Mobile brand, and lip balm brand Eos, among others. According to Ms. Nykoliation, clients have so far reacted positively to the change.
Juniper Park's management team will lead the new office, which Ms. Nykoliation expects to be fully merged within four weeks. TBWA Canada president and head of the Toronto office, Jay Bertram, is leaving the company.
Taxi Canada CEO Rob Guenette agrees that many marketers are looking for fewer agency partners. One prominent example is Procter & Gamble Co., which is asking fewer agencies to do more for its brands.
"There is a cost of complexity," he said. "Any client that has multiple agencies is going to pay a price for that. … This started two or three years ago. Clients looked at just how many agencies were on the roster, and started making strategic decisions."
Agency holding company Havas SA has also tried to respond by creating what it calls "Havas villages," bringing its agencies under one roof and asking them to collaborate on client work on tighter budgets.
Mr. Guenette said that cost cutting was a major factor for the Taxi-Y&R consolidation, and is a focus across the industry as well. And that's not just in Canada: In the U.K., for example, profit margins for marketing services have hit their lowest level in seven years, according to an annual report from accounting firm Kingston Smith W1. Just 13 out of the top 50 agencies there had a 15-per-cent operating profit margin or greater.
"In many, many markets, where there are multiple offices laddering up to the same owner, everybody is looking at how to improve costs. The pressure on margin has been tremendous for a long time," Mr. Guenette said.
" … In general, the market is probably overserved. There has been some trimming already. Will there be more? I can't say. I wouldn't be surprised. … There are a lot of agencies competing for a shrinking piece of the business."