Recent Account Losses Leave Element 79 Thirsting for Clients

Shop Denies Rumors It Will Have to Shut Down or Join Sibling DDB

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NEW YORK (AdAge.com) -- Counting the departures of Gatorade and Tropicana last week, five PepsiCo brands spending more than $320 million last year have left Omnicom Group's Element 79 for its holding-company siblings, more than halving the Chicago agency's billings within the past three months.

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Still, CEO Brian Williams is denying rumors that it will have little choice but to shut down or get folded into Omnicom's DDB -- talk that he insists is "unequivocally false."

"We have had absolutely no discussions about that with anyone, nor do we expect to have any," Mr. Williams said. "We're obviously disappointed to lose such great brands, but we have 17 great clients remaining and more revenue than when we opened, so there's absolutely no reason for us not to go forward."

Element 79, which was founded primarily to service Gatorade and other Pepsi-owned brands in 2001, last week lost creative duties on Gatorade, to TBWA/Chiat/Day, Los Angeles, and Tropicana, to Arnell Group, New York. Those follow February's loss of Propel and the loss last month of Tostitos and Lay's to siblings Goodby, Silverstein & Partners, San Francisco, and Juniper Park, Toronto, a unit of BBDO.

Building on Gatorade
With Gatorade, Element 79 loses an account that has been the centerpiece of its creative reputation. Its iconic ads featuring stars such as Michael Jordan, Peyton Manning and Mia Hamm were a key new-business lure. The agency last year launched a sports unit that has won business from marketers including Discover Card and the LPGA largely on the strength of its Gatorade work.

In some ways, it marks the end of an era, as the Gatorade account, a Chicago touchstone for decades, leaves for Los Angeles, even though other Quaker brands remain in the city. And although Element 79 has officially held Gatorade for seven years, the roots of its relationship can be traced to 1983, when some of its founders worked on the brand at Bayer Bess Vanderwarker.

That history wasn't enough for Pepsi, which is facing market-share declines on both Gatorade and Tropicana. "As we look at the businesses today, we believe Gatorade and Tropicana could benefit from a partnership change," PepsiCo said in a statement. "In essence, both world-class brands demand new, creative thinking to fuel their growth."

Pepsi is keeping its Quaker brands -- which include the famous oatmeal and cereal bars, as well as related grocery brands such as Near East and Rice-a-Roni and cereals including Life and Cap'n Crunch -- at Element 79. The shop's other remaining clients include Alberto Culver, ConAgra Foods, Harris Bank, Supercuts, Celebrity Cruises and American Family Insurance.

Stable footing
Mr. Williams said the remaining accounts produce more revenue than the stable of Pepsi brands -- including Gatorade -- the agency was founded on in 2001. It acquired those brands after their former agency and Mr. Williams', Foote Cone & Belding, was acquired by Interpublic Group, long aligned with archrival Coca-Cola.

An Omnicom spokeswoman declined to comment on the agency's future. And a DDB Chicago spokeswoman did not return calls by press time.

At the very least, the agency will almost certainly face severe staff cuts once its 90-day transition period with the departing accounts expires.

Keeping the remaining Pepsi accounts is a bit of a feat considering the client's borderline schizophrenia regarding agency assignments of late. Frito-Lay's Tostitos, Lay's and Cheetos are on their third Omnicom agency in as many years, as the marketer ping-ponged its business around the network.

The benefits to Omnicom are obvious: Local agencies may have to hire and fire, but the billings stay on the holding company's bottom line.

Productivity hit?
But Troy Mastin, an analyst at William Blair, said doing business that way can be more expensive than it appears. "The one negative that can come out of shuffling within the holding company is the cost related to ramping up and ramping down," he said. As the company is "hiring people, trying to reallocate them against a different account, their productivity may go down," he said.

There are times when it's good for agencies to lose accounts; some clients "are tough to work with," for example, but "more often than not, it's not particularly good for an agency," Mr. Mastin said. "It doesn't help morale, and it may result in layoffs."

He added that the constant juggling can indicate risk to the holding company's grasp on the account down the road. Earlier this year, Frito-Lay, in an unusual move, reached beyond its parent's holding company of choice to hand business for its True North line of healthful snacks to indie StrawberryFrog.
2006 2007 2008
GATORADE Element 79 Element 79 TBWA
PROPEL Element 79 Element 79 Goodby
TROPICANA Element 79 Element 79 Arnell Group
TOSTITOS GSD&M Element 79 Goodby
LAY'S BBDO Element 79 Juniper Park (BBDO)
CHEETOS BBDO Goodby Goodby
Source: Advertising Age
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