Happy new year, Y&R. It's got to be better than 2000.
Following a seemingly unending series of crises, Y&R Advertising's luck went from bad to worse after WPP Group bought parent Young & Rubicam for $4.7 billion in October. The year closed with the loss of blue-chip clients KFC, most of Kraft Foods and, just last week, Swedish wireless-communications company Ericsson.
"All of my nightmares have come true," said Ed Vick, chairman-CEO of Y&R Advertising, who said he abandoned retirement plans because he sensed trouble early in the year. "You could tell in the spring of this year, you could see the underpinnings ... people were not totally engaged, not hungry," he said. "It's amazing that the fallout wasn't worse."
By most accounts, however, the fallout was devastating.
Although the agency picked up new business, it lost a series of major clients in 2000 that cost it about $800 million in billings, according to Advertising Age calculations. The agency had 1999 consolidated worldwide billings of $13.8 billion.
Observers blamed some of the client defections on distractions in the executive suite due to sometimes contentious acquisition negotiations with WPP and even, at one point, Publicis. Once the takeover was complete, employees with vested stock options became even more preoccupied by their newfound wealth.
"A lot of senior people who were responsible for accounts were getting rich and thinking about a lot of things other than the clients," Mr. Vick said. He was quick to add that some of the client losses were beyond Y&R's control: "A lot of problems have been our fault, but not all of them."
Two especially crushing blows came in the last two weeks of the year. Four days before Christmas, the agency lost the creative assignment for KFC's $175 million account, which Y&R had battled to hold on to since early summer (Y&R retains media duties on the account). Tricon Global Restaurants' KFC, formerly Kentucky Fried Chicken, had been a client since 1977--an eon in the fast-food industry.
Last week, Ericsson cut the agency, which had held the account for five years, from the review for its $100 million account. The agency also is at risk to lose another marquee client, United Airlines, which recently put its $100 million global account into play.
Other significant account losses include Citicorp's $120 million U.S. Citibank advertising account; the U.S. Army's $100 million account; H&R Block's $100 million account and Kraft Foods' $50 million Jell-O account--Y&R's oldest client, dating to 1926.
Philip Morris Cos.-owned Kraft later moved Crystal Light, General Foods International Coffees, Balance Bar and a Jenny Craig-licensed food line to other agencies as part of a larger consolidation two weeks ago (AA, Dec. 18). Y&R held on to Kraft's chocolate brands, including the estimated $6 million Toblerone account.
The Balance Bar move was especially hard, since Y&R had won the estimated $25 million account in May 2000 after a battle with Ogilvy & Mather Worldwide, New York. Ad spending in 1999 for Crystal Light, General Foods International Coffees and the Jenny Craig food line totaled approximately $75 million, according to Competitive Media Reporting.
Y&R also took a huge hit in Brazil, losing about $80 million--more than half its billings there--when Ford Motor Co. moved its work to WPP-owned J. Walter Thompson; the shift happened before WPP took over Y&R. Ford is Y&R's largest client, contributing 13% of the company's revenue in 1999.
Internal shuffles also added to the agency's woes. Just two years after Y&R went public, WPP bought the company and promptly laid off about 100 employees as the new owner began streamlining operations. A key post has gone unfilled as well. The agency just recently began a search to replace Vice Chairman and Worldwide Creative Director Ted Bell, who took a sabbatical this past summer and never returned.
The news was not uniformly bad. Y&R won about $700 million in new business and got additional assignments from existing clients worth about $200 million more. But even those sizable gains did not completely compensate for the morale-shaking blows of losing cornerstone accounts such as KFC, Jell-O and the Army.
Among the most significant new wins were Computer Associates International's $100 million account; Pfizer's $80 million account for fat-fighting drug Xenical; Ford-owned Land Rover's $75 million European account; U.K. department store Marks & Spencer's $50 million account; and the global account for software maker Informix, which could reach $50 million to $70 million.
Y&R also picked up the $40 million Nascar account; the estimated $35 million international assignment for Pennzoil-Quaker State International Corp.; and the Direct Marketing Association's consumer education campaign on privacy, estimated at $40 million total for the next three years.
Y&R's media arm, Media Edge, which previously handled U.S. media planning buying for Chanel, assumed the global media duties on the $120 million fashion house account.
New work won from existing clients included Andersen Consulting's restaging as Accenture, which could spend up to $175 million on its makeover. Y&R also was given the $35 million SonyStyle.com account by new client Sony Electronics.
But the agency suffered a public embarrassment when Sony, concerned about whether ads depicting Santa as a kidnapping victim were in good taste, pulled an estimated $5 million to $7 million inaugural campaign for its e-commerce site the night before it was due to break.
A key account Y&R held onto in December after a review was Metropolitan Life Insurance Co.'s $50 million business. "We just took our eye off the ball, and we deserved that review--and, thank God, they gave us a fair shot," Mr. Vick said.
The agency also had to cope with two blue-chip clients, Xerox Corp. and AT&T Corp., suffering serious downturns.
Still, Mr. Vick maintains that the agency will rebound. "Y&R's got a lot of pride, and everybody in New York knows that we've taken some body blows, and we're going to want to bounce back from that and show everyone we're still Y&R."
Copyright January 2001, Crain Communications Inc.