In a surreal environment where Argentina has suffered five economy ministers in 15 months and earlier this year had five presidents during 10 hectic days, marketers are pulling products from stores as companies find the more they sell, the more money they lose as the cost of imported raw materials multiplies.
"Entire product categories are destroyed," said Gustavo Martinez, a Ph.D. in economics who is president of Ogilvy Argentina, part of WPP Group's Ogilvy & Mather Worldwide. "Detergents, diapers, the car market. And the prices of imported products have tripled. We're in the middle of a typhoon."
Take Pringles, until recently sold everywhere from supermarkets to Blockbuster video stores. Earlier this year, Procter & Gamble Co. tried a classic recession strategy with price-oriented ads by Grey Global Group's Grey Argentina promoting the "medium size, small price" containers. But the plunging peso soon made Pringles, an import, three times as expensive as locally made snacks such as PepsiCo-owned Frito-Lay's Cheetos. Now Pringles have disappeared.
Ad spending fell 40% through April in Argentina, according to Zenith Optimedia Group, and ad market watchers in Argentina expect spending for the year to plunge at least 50% in local currency.
In dollars, the picture is even worse. Zenith, owned by Publicis Groupe and Cordiant Communications Group, said ad spending in Argentina was $3 billion in 2000, dropped to $2.6 billion last year and will tumble to $591 million in 2002. In 2003, Zenith predicts, the drop in ad spending will stop in local currency but the decline will continue to $403 million when ad spending is translated into dollars.
This is the fourth consecutive year ad spending has tumbled in Argentina. But the economic chaos intensified when Argentina's government scrapped more than a decade of parity with the U.S. dollar in January 2002. Since then, the peso has lost 70% of its value. That huge drop makes sales in Argentina nearly worthless when translated into dollars or euros back at a multinational marketer's headquarters.
As companies report earnings, Argentina is a scapegoat. Cadbury Schweppes blamed the company's flat first half on weak sales in Argentina, where volume was down by 40%. Coca-Cola Co. reported a 22% second-quarter drop in sales in Argentina.
At Dial Corp., Chairman-CEO Herbert M. Baum told analysts this month that the maker of Dial soap may exit Argentina, where the company has invested $26 million, if conditions don't improve. Dial's unit volume in Argentina-the number of cases it sold-actually increased 10.2% last quarter vs. a year ago. But Dial said international revenue fell by 20.6% in the second quarter to $26.2 million, mainly due to the peso devaluation.
With unemployment at 23% and rising, salaries falling and inflation running at 30%, Argentine consumers are changing shopping habits drastically. Pablo Azcarate, ACNielsen's manager of market research in Buenos Aires, said the proportion of people opting for the least expensive brands has risen to 66% today from 33% in 1999.
He estimated the crisis in Argentina has forced eight out of 10 people to alter spending habits. Consumers are shopping more frequently but buying less and in smaller packages, he said. In one significant change, shoppers lured to the big stores and supermarkets built or acquired in the 1990s by international retail giants like Wal-Mart Stores and Carrefour are drifting back to small shops. Supermarket sales fell by 13.3% in the first half of 2002, according to local consultancy CCR.
stripping back portfolios
In Argentina, marketers are reducing their brand portfolios to the most basic products. P&G and Unilever, after years of heavy spending on their international brands, have reintroduced inexpensive local detergents Rindex and Drive. Unilever, Argentina's biggest advertiser, also continues to spend on Molinos Rio de la Plata, a line of inexpensive flour-based foods like pizzas and cakes that continues to launch new products.
At many Argentine ad agencies, staff numbers have been cut in half and salaries slashed by up to 45%. Some agencies furlough staff for months without pay, hoping to bring them back later.
Despite the severe cutbacks at agencies and clients' own reduced or cancelled production budgets, Argentina's highly creative ad agencies were top performers at last month's International Advertising Festival in Cannes, where they won 10 Lions. The resilient Argentines are using their creative kudos as a calling card to pull in international assignments from different offices in their own networks or working directly with international clients.
"Argentina's crisis is economic, not one of ideas," said Dario Lanis, president and creative director of Havas-owned CraveroLanis Euro RSCG, Buenos Aires. "The agency's creative performance has helped us a lot, and many companies abroad want to work with us."
Mr. Lanis said the agency has been doing work for Euro RSCG client Peugeot in France, Cadbury in the U.K. and Mexican telecom Avantel.
Vegaolmosponce, owned 45% by Interpublic Group of Cos.' Lowe & Partners, won a Gold Lion at Cannes for a commercial for Unilever's Axe male deodorant that hasn't even run yet in Argentina. Hernan Ponce, one of the agency's partners, has a global creative role on Axe, and his agency's spot, "Metamorphosis," aired first in Spain, Belgium and the Netherlands, with Argentina to follow.
"Every day we have to wake up and find new ways to make money," said Ogilvy's Mr. Martinez. Despite cutting staff from 125 to 55 in Argentina, he dispatches staffers to Ogilvy offices in Peru, the Dominican Republic and other countries, to do planning, research, creative work and training. Then Mr. Martinez sends a bill.
no light at end of tunnel
"I can keep my people working and receive dollars for it," he said. Mr. Martinez, dispatched to Argentina almost two years ago, said each day is worse than the day before.
Said Mr. Ponce from Vegaolomosponce: "I think the worst is that there's no light at the end of the tunnel. Argentines have an awesome ability to cope with disaster. But this time it's different."
- contributing: jack neff