Brand owners still focused on cost: WPP ceo

28 June 2010

LONDON: Most major brand owners are still "very cost-conscious", while anxiety is returning among many consumers, according to Sir Martin Sorrell, chief executive of WPP Group.

Speaking at the Cannes Lions International Advertising Festival, Sorrell suggested that WPP is ahead of its budget both in terms of organic revenue and profit margins as trading conditions improve.

More specifically, the organisation's like-for-like growth accelerated in the second quarter, with April's totals jumping by around 4% year-on-year and May's figures by over 5% on the same metric.

As such, Sorrell predicted WPP's current target of an annual uptick of 2% in comparative sales was "probably on the conservative side", and expressed confidence that margins would reach 12.7%.

However, he also warned that this positive development must be subjected to a realistic assessment, given the extremely low base against which it is being measured.

"It is amazing how people congratulate themselves and others about growth on weak comparatives," Sorrell said. "The fact is, clients are still very cost-conscious."  

Mounting debt worries in Europe are also indicative of a broader trend in various nations, which means a renewed sense of pessimism is observable in a range of countries.

"There are some clouds on the horizon... people are starting to be nervous again," he said, adding that there were no signs yet that these fears were impacting on WPP's business.

"The caution is a good thing though because when there's caution, people do something about it."

Elsewhere, WPP's ceo said he disagreed with some of his competitors regarding how much there is left to buy, especially in markets like China and India.

"The map is continuously shifting so there must be opportunities. New markets, new media and consumer insight remain our focuses," he said.

For now, WPP will primarily emphasise small and medium-sized acquisitions, particularly in countries like Brazil, Russia, India and China.

"We have a lot in the pipeline," said Sorrell.

Last month, WPP took over Midia Digital and I-Cherry, two Brazilian agencies specialising in digital marketing and online search respectively.

"We'll continue to do such things," Sorrell added.

These purchases provide a useful example of the overall shape of WPP's efforts to boost its new media revenues both organically and through acquisitions. 

"We'd like to do more but the prices in America are still high," Sorrell said.

GroupM, WPP's media arm, has raised its forecast for global adspend growth, which it believes will leap by 3.5% in 2010 to $451bn (€366bn; £301bn), having pegged this expansion at just 1% six months ago.

This increase, GroupM stated, will be fuelled by emerging markets, as well as by the sustained demand for digital advertising.

For 2011, the firm anticipates media budgets will climb by 4.5%, with China acting as the key driver of this incremental expenditure both this year and next.

"China remains the world's biggest contributor to ad growth in 2010, accounting for one in three of all net new ad dollars expected this year, and one in five as the rest of the world catches up in 2011," Adam Smith, GroupM's futures director, said.

Data sourced from Wall Street Journal; additional content by Warc staff