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GroupM is in the trough of the business cycle — when will it reach the crest again?

November 6, 2023
in General
GroupM is in the trough of the business cycle — when will it reach the crest again?
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It is a tense time for GroupM, the world’s largest media buyer.

With Kirk McDonald, the CEO of its North America division and arguably one of its most prominent senior executives, stepping down after three years, the pressure is on to not only find his permanent replacement — but to replace hundreds of millions of lost media revenue from client desertions. 

What’s even worse for this WPP-owned global media agency group is that these issues represent just the tip of the iceberg. There are challenges on several fronts, including economic uncertainty, fierce competition, talent retention concerns, structural weaknesses, and evolving data privacy regulations, among others. 

Admittedly, these challenges are a natural part of the media buying business, and GroupM has historically thrived in spite of them — an internal source who spoke on condition of anonymity pointed out that the group has seen 23% total growth on a four-year basis since 2019. 

However, recent times have proven to be more demanding. In Q3 of this year, GroupM experienced modest revenue growth of only 1.6%, in contrast to the “high single-digit” growth achieved by Publicis.  Year-to-date, GroupM revenue did grow at a healthier 4.6%, according to its latest earnings reoprt, more in line with other holdcos. And privately, executives believe it will net out well ahead of Q3’s dip.

So, why the slowdown? It’s due to a combination of factors, like losses in North America, tech advertisers cutting back on spending and even a bribery investigation in China involving GroupM. 

GroupM executives declined to speak on the record for this story.

At first blush, the final few months of the year look like they’re going to compound, not ease, those problems. WPP revised down its 2023 full year forecast to between 0.5 to 1% growth, which doesn’t exactly paint a rosy picture for the media agency’s holiday season prospects, especially considering that it accounts for nearly 40% of the holding group’s revenue.

Ebb and flow of accounts

Maybe, this pill would be easier to swallow for WPP execs if it hadn’t lost so many accounts. As one former GroupM exec put it, performance in the U.S. has been “abysmal.”

According to Comvergence data, GroupM globally is down $155 million (not including retentions, which do put it up by $1.2 billion in media spend), in part due to major client losses including Pfizer and Shell. That said, the internal source at GroupM pointed out recent wins including PayPal globally and Nestlé in EMEA, as well as retention of some Unilever business and Uber in APAC.

The news is worse in North America, where the losses of Uber, Walgreen’s and L’Oréal, have led to a media spend drop of $495 million, even counting retentions. These numbers don’t include the very recent loss of General Mills, an $800 million global account — $500 million in the U.S. alone.

To be fair, Jay Pattisall, Forrester’s vp and principal agency analyst, noted that these kinds of account troughs can happen to any of the major holding companies. But he did also note that through this year,  “GroupM in particular had the least performance in new business — they lost the most clients comparatively and didn’t replace them as quickly.”

Unsurprisingly, GroupM has a different take on the situation. “While things will always vary from market to market, we are more than comfortable with how we are doing as a business,” said a GroupM representative. “GroupM has led the industry in retained business in the first half of the year and our agencies include the leading network for new business during the same period, this year’s Cannes Lions Media Network of the Year, and the best performing agency network for media awards overall. We are seeing our strongest ever employee satisfaction scores and the depth of talent and innovation coming out of GroupM Nexus and Choreograph leaves us well positioned to continue leading the industry in quality and performance for years to come.”

Bulk ain’t what it used to be

Clearly, GroupM’s tried-and-true strategy of relying on bulk buying power isn’t as enticing to marketers as it once was — which is why it’s making so many changes. Sure, it’s still crucial for nabbing great deals on media purchases, but it’s no longer the top priority on every marketer’s list. These days, they’re seeking additional value from their media agencies. That could mean expertise in data analysis, advanced analytics, strategic insight, or even guidance on navigating digital transformation.

As one industry insider put it, “We stayed away from GroupM for a while because their primary advantage was their buying power, and we felt that had become a basic requirement.” 

This was back in 2019, and the fact that it still rings true four years later tells you a lot about the challenges GroupM is facing. 

In that ensuing time, GroupM has reshaped its data offering multiple times, with two-year-old data orchestration unit Choreograph being the latest iteration. One insider described the unit as “fucked” — not the most constructive explanation of its problems, but an indicator that the mood internally is not bright by any measure. 

The internal source at GroupM noted that new leaders Evan Hanlon and Rich Astley are “definitely going through a transition period where some feathers are no doubt going to be ruffled.” The source cited Hanlon and Astley as “two of the most successful product builders from inside the group from Essence, Xaxis, and Finecast … We have an enormous amount of confidence in what they are building.” 

Is morale up or down?

Other sources inside GroupM said morale is whispered to be at its lowest level since before the pandemic, with one insider describing a “despondent mood” due to the fact that many decisions for clients are financially-driven more than marketing-driven.  

The internal source countered that “most recent global employee surveys contradict this quite significantly. 88-89% of employees told us very recently they believe client satisfaction is a top priority for their [operating company], understand how their work contributes to our goals and objectives, and that they trust and respect the people they work with.”

To give it credit, GroupM has been trying to tackle these challenges head-on over the years. In fact, it’s become pretty good at creating special teams tailored to each client’s needs and getting the best execs on board to make it all happen — time will tell if Hanlon and Astley represent that. 

So much so that GroupM’s Wavemaker division came out as the top global media agency network in the first half of the year for new business wins, with a total new business value that topped $1.2 billion, according to Comvergence. (The wider GroupM network actually came third over the same period, trailing behind Publicis Media and IPG’s Mediabrands.) Third quarter has been a different story, however.

Likewise, Mindshare won Media Network of the Year at Cannes Lions and EssenceMediacom led the WARC Media 100 for the year.

When will the turnaround kick in?

It’s all to say that GroupM might be hitting the right notes in certain areas but hasn’t quite nailed the same proposition across the entire group. In fairness, cohesion has always been a bugbear for GroupM.

“The North America business has always been a bit of an island within GroupM,” said a former exec who left the agency several years ago. “It was a separate entity even on a collegial basis. I rarely spoke to my colleagues in that part of the business while I was there.”

Now, while it’s possible that some changes have occurred since this executive’s departure, it’s a point of debate whether they’ve been substantial enough. If they were, GroupM’s problems wouldn’t be as pressing, and WPP CEO Mark Read wouldn’t be emphasizing the need for further simplification and efficiency across the network. (There’s been grumbling across the industry about the removal of any shred of once-legendary names like J Walter Thompson, Young & Rubicam and Wunderman.)

And McDonald’s looming departure may not necessarily solve what ails the company. As Forrester’s Pattisall reminded, “Kirk McDonald is not the architect of the strategy inside GroupM — that was done at the global level [under GroupM’s global CEO Christian Juhl]. So replacing a North American leader could potentially help with some of the executional considerations that they have, but I don’t think that solves the problem entirely.”

That’s the problem with a business like GroupM. It has, in a sense, become a victim of its own success. Juhl is said to envision a transformation that mirrors the innovative Essence agency, a business built on a foundation of data and technology. If he succeeds, GroupM could become an agency that smoothly handles global campaigns in loads of markets, all at the same time, while keeping quality in check. 

But, there’s still some debate about whether this is the exact fix the business needs to get back on track. As one senior marketer who has worked with GroupM over the years said: “The big problem with implementing such a model is that people aren’t used to paying for that sort of service. That’s the legacy the likes of GroupM have left on the market.”

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