Unilever has surprised many in the industry with its decision to review its gigantic Western Europe media buying account.
Even its agencies, Initiative and MindShare, seemed surprised by the speed of its decision to move into review mode. While they sensed Unilever would consider, over the long term, the benefits of centralisation, some assumed there would be no action on this until 2005.
Unilever, whose brands include Lynx Pulse, spends £680 million in the 14 markets under review. It is also known as an advertiser with incredibly strong teams in local markets and embedded relationships with its agencies in each market. Why consider changing this system on its media buying?
Mainly because Unilever's media team, led by the media director, Alan Rutherford, is under growing pressure to deliver savings.
This pressure intensified on 28 April when Unilever published disappointing first-quarter results. Its net profit fell by 15 per cent to 530 million euros while turnover was down 2 per cent, casting doubt on the effectiveness of Unilever's "Path to Growth" savings programme.
Though Unilever's statement on the review alludes to maintaining "its leading-edge position in how it manages media", the focus seems to be on achieving savings rather than a radical change in the way it buys media.
Rutherford declined to elaborate on this statement, but one source says: "There is no question that Unilever is under profit pressures and has an incoming chairman (Patrick Cescau, its foods director, replaces Niall FitzGerald in September). More than most, this review is procurement-driven and about cost-effectiveness."
The review is referred to as "Project 40" internally because Unilever wants to find 40 million euros in cost savings (4 per cent of its total budget in the region). An ambitious task according to some, who suggest it will do well to achieve savings of 20 million euros. "It's pie in the sky to say that they'll save 40 million. They have very good deals locally," an agency source says. "In terms of cost per 1,000, there's not much room for improvement."
Unilever is unusual among clients in being so involved in its local deals. In most markets, it works with agencies in a co-negotiating role, working closely on all deals with media owners. In the UK, for instance, it was heavily involved in working alongside Initiative to negotiate its four-year deal with ITV. In Italy it handles all its buying in-house, with MindShare providing research back-up.
According to some, these strong local relationships with agencies and media owners has led to some opposition at local client level to the review. One source suggests that Germany and Italy attempted to win exclusion from the process, only intensifying Unilever central management's determination to press ahead.
Intriguingly, Unilever is throwing the review open to non-roster agencies.
OMD Europe and Carat have been invited to pitch against Initiative and MindShare, although OMD Europe has decided not to pitch because of client conflict.
Non-roster agencies may well be wary of being used as a stalking horse to extract better deals from the incumbents. Especially as the process is likely to be a long one - kicking off by July and lasting until the autumn.
Incumbents in each market argue the relationships they have in place with Unilever are so strong that it would be a major wrench to disrupt them. For instance, Initiative might take the view that, though it has most to lose (it has the business in 11 Western Europe markets), any change would be a major upheaval, involving large costs to shift the accounts.
On the other hand, MindShare is said to have increased its share of Unilever's $3.3 billion global adspend from 20 per cent five years ago to 50 per cent. It won the $700 million US account and shares the business in Asia with Initiative. But in Europe, it has just the large German account (and a small consulting role in Italy). Initiative has defended its ground well, retaining the UK business in a review two years ago and winning the consolidated Spanish business three years ago, adding the Nordic business around the same time.
Although Unilever is working towards a consolidation, there is no certainty this will happen unless evidence emerges that cost savings will result.
On a local level, Initiative must be frustrated at facing a review of the £194 million business just over a year into its latest contract. Any movement of the business will mean an entirely new look for the top of the UK media agency league.
STEPS TOWARDS THE REVIEW
January 2000: Unilever unveils its five-year "Path to Growth" savings
December 2000: Unilever appoints MindShare to $700 million
consolidated US media account
February 2002: Unilever opens review of £194 million UK account.
Initiative retains the business
February 2004: Unilever chairman, Niall FitzGerald, announces he will
leave in September
April 2004: Unilever announces disappointing first-quarter results. Net
profit is down 15 per cent