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Omnicom Marketing

Drastic transformation of 'wounded' rivals is putting pressure on Omnicom

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By Rebecca Stewart, Trends Editor

February 13, 2019 | 5 min read

Advertising giant Omnicom has performed well over the fourth quarter after posting organic revenue growth for the period. However, chief executive John Wren suggested that the transformation rival holding groups were undertaking was putting pressure on his own business.

Drastic transformation of 'wounded' rivals is putting pressure on Omnicom

The strong Q4 performance puts Omnicom in good stead during a period of rapid technological and client change / Omnicom

"Running a company, you don't mind when your competitors are weak, [but] you really don't like it when your competitors are wounded because they tend to do things that they wouldn't do if they were simply weak. So it's been a rather competitive environment the last six months or so," he said.

More efficient project spending toward the end of the year and the addition of more clients to its roster saw Omnicom (which owns BBDO, OMD and Porter Novelli) up its net income by 57% to $399.2m over the fourth quarter.

Q4 global revenue actually fell 2.2% to $4.09bn, but new business wins came in at $1.1bn.

The strong performance puts Omnicom in good stead during a period of rapid technological and client change, with organic revenues rising 3.2% - in line with analyst expectations.

Chief executive John Wren told shareholders on a call on Wednesday (13 February) that the holding group was catering to clients "looking for greater simplicity from partners" and "demanding award-winning creative alongside deep expertise in technology, data and commerce in a single organisation".

To "keep pace", Omnicom implemented a restructure in 2018 which saw headcount reduced by 1,400, of which 500 staff were replaced. The challenge is, though, its competitors have been reengineering their own business models over the past 12 months, and in much more dramatic ways.

Omnicom's numbers do represent stability in a market where just last week Publicis revealed falling ad spend and cutbacks by American FMCG brands. However, the French ad group's chief Arthur Sadoun has already laid out a plan to “accelerate the transformation" of its relationship with top spenders.

His new blueprint follows on from the the implementation of a streamlined ‘country model’ currently live in select markets and set to be rolled out across the business. It's a strategy that seeks to break down silos between agency brands in each country under a centralized team, and Sadoun has pointed to the UK business’ growth of 3.8% to prove it works (Annette King was hired from Ogilvy to lead one of the first country teams).

In the face of efficiency drives from clients, UK counterpart WPP is aslso taking a different approach with a three-year plan to turn around its business – including a focus on integration and a "commitment to creativity".

Chief exec Mark Read has already consolidated creative and digital with the mergers of JWT and Wunderman (now Wunderman Thompson), VML and Y&R (VMLY&R).

Last year, Omnicom itself made seven acquisitions in 2018 and chief financial officer Philip Angelastro said he expects it will make the same, if not more, in the coming year.

Among the biggest deals it inked was the estimated $185m purchase of agency Snow Companies.

“I think our preference would be to do more M&A similar to what we accomplished in 2018, more accretive deals if they're available, if they have the right strategic and cultural fit,” said Angelastro.

“We've got a number of them in the pipeline that we've been working on and continue to work on. Some of them end up having a long cycle of discussions. Some of them we don't ultimately get close. So, it's hard to predict, but we would certainly prefer to look more like what we accomplished in 2018 and 2017.”

Wren remains wary of what the future on the digital side, however, warning that the rise of Amazon as a major adtech player threatens to disrupt traditional marketing businesses.

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A global leader in marketing communications, Omnicom provides brand and advertising services to over 5000 clients in over 100 countries.

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