Earlier this month, GroupM CEO Christian Juhl summoned three of his global agency CEOs and other key direct reports to San Francisco to thrash out the future direction of WPP’s hugely influential media investment arm — the advertising agency holding company’s most important driver of growth.
The confab followed a bruising period for GroupM, which is responsible for planning and buying more than $63 billion in media globally. Over the past year, GroupM has either lost accounts or lost pitches amounting to billions of dollars of ad spend.
“OMD and Publicis are winning all the meaningful pitches,” said a former WPP agency executive, referring to competitors Omnicom and Publicis Groupe. “I have never seen two of the big players separate themselves from the pack in a way that’s happening now.”
Recent losses — like the $1 billion L’Oreal US media account and Uber’s $600 million US account both switching to arch rival Omnicom Media Group, and Pfizer awarding its $1.5 billion global account to IPG and Publicis — have fueled speculation both inside and outside WPP that GroupM North America CEO Kirk McDonald is leaving the company after just over three years in the role. McDonald didn’t respond to a request for comment.
WPP and GroupM declined to provide official comment for this article.
To be sure, WPP has also picked up big media assignments from Verizon, Discovery, and Adobe in recent months. The Ogilvy and Wavemaker businesses have been particular bright spots. But it’s not enough to assuage current concerns both inside and outside of WPP.
One problem is that WPP’s US media revenue is underperforming compared to its peers, said Thomas Singlehurst, head of European media equity research at Citigroup.
“The harsh reality is that relative to other super-large agency groups, WPP is underweight in the US and, broadly speaking, the US is the bit you want to be exposed to,” said Singlehurst. “Then within the US, broadly speaking, WPP is underweight relative to the peer group in media — and media is the bit you want to be exposed to.”
A person familiar with the matter said that Juhl has a plan for GroupM and that he will soon “move that to the next stage.” The source didn’t provide specifics, other than to say, “part of that is going to be to address the underperformance in the US.”
WPP’s US media business is just one of many tasks filling WPP CEO Mark Read’s overflowing intray that staffers and investors are hoping for him to quickly fix across the company, which employs more than 100,000 people in 110 countries.
On Tuesday WPP confirmed it had fired a GroupM China executive who had been detained by Shanghai police last week on charges of bribery. The company said it was cooperating with the authorities, conducting its own investigation into the matter with an independent third party, and that it was suspending trade with any external organization it understands to be part of the police’s enquiries.
The police raid of GroupM’s offices came amid rising concerns about Chinese law enforcement increasingly targeting executives at foreign companies operating in the region following an update to its anti-espionage law. It’s a worry for WPP: China is already its fourth-largest market by revenue and a clear priority for future growth.
Further, GroupM is just one of the many parts of WPP’s business that Read needs to fix.
A bump in the road for Read’s WPP turnaround
When Read took over the holding company from former CEO Martin Sorrell in 2018, he inherited what was previously described by one shareholder as a “disorganized mess” of hundreds of individual creative, digital, health, and PR agencies around the world. A business built on Sorrell’s decades-long aggressive acquisition strategy, Read sought to simplify the alphabet soup of WPP-owned brands and disposed of some assets. His ongoing task has been to create a more coherent proposition while also improving margins and reducing debt.
But right now, WPP shares are slumping — down around 17% in the year to date. The company in August cut its revenue outlook for the year and analysts expect it will grow slower than some of its rivals this quarter. WPP has said it’s been impacted as major tech company clients, which make up about a fifth of its business, reined in their marketing outlay this year.
WPP’s market capitalization has dropped from around $14 billion in the month Read became CEO to just under $7 billion at the time of publication. Meanwhile, over the same period, Publicis grew its market cap from $13 billion to $18 billion.
Insiders describe a whirlwind of change but confusion about the bigger vision
A current WPP agency executive said they were frustrated by what they described as a vacuum of information about the bigger strategy for WPP.
“Considering the pressure on holding companies in general and WPP’s share price, it’s awfully quiet,” the executive said.
The absence of a clearly articulated vision is particularly keen as WPP aggressively merges its numerous agencies.
These include the media agencies Essence and MediaCom to form EssenceMediaCom, Grey and AKQA became AKQA Group, the PR firms Sard Verbinnen and Finsbury Glover merged, and WPP’s various design agencies were grouped to become Design & Partners.
Just last week, WPP merged Wunderman Thompson and VMLY&R to create VML — adding to the nervous anticipation about which other entities would be brought together next.
“It’s like they need to take a breath,” said a former WPP creative agency staffer who is still close with their former colleagues.
WPP said last week that the formation of VML wouldn’t lead to layoffs, but insiders said they seemed inevitable eventually. Others questioned the rationale behind replacing the brands of the storied creative agencies J.Walter Thompson and Young & Rubicam in particular with VML, a lesser-known and younger agency originally launched in Kansas in the early ’90s.
“They’re meant to be in the branding business but who knows VML from a piss pot? VML means nothing outside of Kansas City,” said a former WPP exec.
Read has previously pointed to WPP’s relationship with Coca-Cola as an example of where he sees the company’s future headed. Coca-Cola once used thousands of different agencies around the world and, in a move that’s rare in the marketing industry, consolidated most of them to WPP, which now services the soft drink giant’s $4 billion creative and media requirements through a dedicated unit called Open X. (Dentsu still looks after media in some markets.)
Read said in August that WPP believed the Coca-Cola example was a “first of its kind model, and in our view, not the last.”
Nevertheless, some insiders and observers are bracing for change of even greater magnitude. They speculate that this could be a wholesale restructure; a transformative acquisition; WPP shifting its primary stock market listing to New York and away from the London Stock Exchange, where businesses have been impacted by Brexit; taking the company private with the help of a private-equity firm; or even merging with a smaller advertising holding company.
“It feels like something bigger has to happen now,” said a current WPP agency executive.
Last week, Read, WPP CFO Joanne Wilson, and COO Andrew Scott held a video meeting with WPP’s leadership team. The three top executives “set out a vision for what we were doing, and where we were going to invest, and people were excited about it,” said a person who was on the call.
WPP is due to report earnings on Thursday, October 26.
Huge stakes and tough competition
2024 is set to be a defining year for WPP.
WPP insiders and observers said a new chairman of the board could force more change inside the holding company, with current chairman Roberto Quarta set to step down in the spring. Non-executive board director Angela Ahrendts, the former Burberry CEO and Apple executive, is leading the hunt for Quarta’s successor.
Industry experts are expecting another “Mediapalooza” when billions of dollars in media accounts will once again be up for grabs — and potentially to lose — because many large advertisers haven’t reviewed their agencies in years. The pitching process can be all-consuming and distracting for the day-to-day business as agency groups assign their most-impressive executives to win or retain key accounts.
The ongoing pitch for Volkswagen’s $4 billion global media business underscores the tremendous amount of resources needed to win the proposal, and the huge prize at stake.
“We know that engaging with an RFP of this scale requires considerable effort and resources on your part,” reads the VW request for proposal, a portion of which was seen by Insider. “In return for this effort now, we are proposing to assign successful partners for a period of up to 6 years. We recognize that a process at this scale cannot be undertaken, by anyone, on a 3-year cycle.”
WPP enters this crucial period facing off against rivals who already have the wind against their backs. The French holding company Publicis Groupe for instance now has the biggest advertising holding company by market value, and recent US media wins have included luxury giant LVMH and consumer goods company Kimberly-Clark. (Publicis Groupe isn’t pitching for the VW business, according to a person familiar with the matter.)
Bets Publicis made years ago, like its “power of one” model to integrate its agencies around key disciplines and its $4.4 billion acquisition of data marketing company Epsilon appear to have paid off, despite some initial skepticism. Publicis posted organic revenue growth of 5.3% in its September quarter, beating analysts’ expectations, and raised its guidance for the year.
While WPP has recently sprung up a new data group called Choreograph and its GroupM Nexus digital performance marketing business, experts said Publicis’ narrative around data and digital is more established and easier to understand for CMOs and Wall Street alike.
WPP’s Read has “got to stop the addiction to cost reduction and has got to focus on how you add value,” said Michael Farmer, a marketing consultant and author of the 2023 book “Madison Avenue Makeover.”
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