Why So Many Agencies Are Storming Road to Sao Paulo

Brazil's Newly Emerging Consumer Classes C and D Fuel 20% Spending Jump in 2010

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RIO DE JANEIRO (AdAge.com) -- Move over, China. Ad agencies are flocking to Brazil, lured by a huge market that the global recession largely bypassed, newly affluent consumers eager to shop and the promise of major deals when Brazil hosts both the 2014 World Cup and the 2016 Olympics.

Brazil's Big   Boom

Brazil's Big Boom
Wieden & Kennedy opened in Sao Paulo on Dec. 1, Arnold has picked a Brazilian shop to buy, and Dentsu is looking.

And in one intriguing play to cash in on the coming sports-marketing bonanza, WPP Group is starting a sports-marketing consultancy with soccer legend Ronaldo, who will be CEO of 9ine, named after his shirt number.

"Ronaldo will open doors, win business, participate in presentations, and influence strategic planning," said Sergio Amado, president of Ogilvy Group in Brazil, who will help oversee 9ine and usher clients of parent WPP Group into the venture.

Similarly, San Francisco-based Pereira & O' Dell will launch a new business unit in 2011 called PodSport, to serve as a marketing consultant to North American brands interested in investing in Brazil. Pereira CEO Andrew O' Dell said, "Everyone looks at Brazil now like they looked at China 10 years ago."

Although China has become the world's biggest market for everything from cars to cellphone subscribers, Brazil, the fifth-largest country by both size and population, at almost 200 million people, isn't all that far behind. Brazil is the world's biggest market for deodorants, No. 2 in children's products and No. 3 in cosmetics, according to Euromonitor. Jato Dynamics ranks Brazil as No. 4 in car sales. Brazil is the sixth-biggest ad market, with 2010 ad spend of $14.2 billion, according to ZenithOptimedia's October 2010 forecast.

Fueling that growth -- and a jump in ad spending of more than 20% in the first 10 months of this year -- is Brazil's Class C, an emerging middle class of almost 100 million people that has exploded in the last couple years, snapping up their first cars and houses and swapping basic cellphones for smartphones.

More recently, the 60 million-strong Class D, which ranks even lower on the country's socioeconomic scale, started shopping for computers and plasma TV sets. Brazil also has one of the most creative, vibrant advertising markets in the world, which treats its top creatives like rock stars.

Icaro Doria, who left his job as a group creative director at Goodby, Silverstein & Partners to return to his native Brazil to open a Wieden & Kennedy office in Sao Paulo's trendy bohemian Vila Madalena neighborhood, attributes Brazil's boom to a rare stretch of stable government and economic growth.

"Brazil has such momentum," he said. "It's become more like a normal, stable place, and Brazil has a lot of very entrepreneurial people. It's a more mature and welcoming space."

As agencies gear up in Brazil, the police are, too, in an effort to make the country safer before the 2014 World Cup. But after years of tolerating drug gangs in Rio de Janeiro, the government's efforts to crack down sparked a violent reaction late last month when drug gangs burned cars and fought pitched battles with police in Rio's streets and slums, leaving more than 30 people dead.

"You can't let the fear overtake the opportunity," said Tom Bernardin, Leo Burnett's CEO. "And it has to improve."

Some agencies are launching their own outposts, like Wieden and digital agency R/GA, which opened in Sao Paulo this spring. Others, like Arnold, want to grow by acquisitions. According to CEO Andrew Bennet, Arnold will launch in the first quarter with the help of a local agency.

WPP and Omnicom are the biggest holding companies in Brazil. Of the top 15 agencies in 2009, 12 are multinationals. Independents include DPZ, NBS, Moma, Propeg and Santa Clara, which split from its former international partner SapientNitro when that agency became more technology-focused. "We're open to international deals," said Fernando Campos, Santa Clara's creative director.

Many agencies have been in Brazil for decades, of course. But even they are doubling down. In October, Publicis bought a 49% stake in Talent, the largest remaining independent agency in Brazil, for about $110 million, and McCann Erickson merged with W/Brasil in June. Digital agencies are being snapped up. Leo Burnett's Mr. Bernardin has just been to Brazil -- twice -- and says he's interested in "alliances" in areas like shopper marketing and design.

"Brazil holds enormous opportunity, but it can be a challenging place to do business," said Colin Spooner, Pereira & O' Dell's director of new business who will run the new PodSport unit. "Cultural differences, language barriers and an economy undergoing enormous change can be intimidating."

TBWA learned that the hard way. The agency flopped in Brazil after buying the wrong agency, three times. The fourth deal -- a savvy local shop called Lew Lara -- was the right one, and came in the nick of time to participate in TBWA's successful global pitch for Visa, which mandated a strong Brazilian presence.

But not everyone is welcome. Media agencies are effectively banned in Brazil, under rules that only let full-service agencies buy media. It's a cozy arrangement for Brazil's powerful media owners and the ad agencies who rake in lucrative volume discounts from the media. Agencies invest part of that windfall in paying top creatives lavish salaries, one of the reasons Brazil has such a wealth of creative talent.

"There's no incentive [to open a media agency] and you can be penalized. I don't think the situation is going to change very soon," said Mauricio Sabogal, worldwide managing director at Initiative.

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Contributing: Rupal Parekh and Kunur Patel

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