Germany: Europe's giant still sleeps

Despite signs of a recovery, the German advertising industry is reeling from three years of decline. Friedhelm Gieseking reports.

A heavy sigh of relief could be heard groaning through the corridors of Melle Pufe's Berlin offices recently. The small but highly regarded advertising agency had avoided bankruptcy by the skin of its teeth, rescued by a deal with its creditors and suppliers.

Business had been booming until the fateful turn of the millennium. The agency had taken out bank loans to plough money into ambitious expansion plans and build staff numbers. But then the new economy imploded and the shop was soon facing insolvency.

"Maybe we were somewhat naive to believe in the forecasts at the time," Gerald Denker, one of the agency heads, admits. Fortunately, its clients kept faith, and the remaining 22 staff were spared the axe. "We're now looking to the future with a bit more optimism," he says.

Not everyone was so lucky. In the same week that Melle Pufe guaranteed its safety, the trade press reported that three other well-respected German agencies had run into financial difficulty.

This kind of collateral damage is a reflection of the enduring maelstrom that is the German advertising sector, itself a victim of a miserable wider economy. "After 17 years of continuous growth, the German advertising market has shrunk in the past three years," Holger Jung, the chief executive of the Jung von Matt agency group and the president of GWA, the German association of advertising agencies, says. "As a result, agencies have had to cut costs, especially personnel. Falling adspend has given clients the chance to maintain market share with less effort, triggering a downward spiral."

There are, however, increasing signs of a modest recovery. Several economists have raised forecasts for growth, expecting GDP to creep up by 1.8 per cent this year and about 2 per cent next year.

The biggest spanner in the country's economic machine is the dearth of domestic demand. While other European consumers have become a bit more frivolous with their cash, Germans are keeping a tight grip on their purse strings.

And who can blame them? Ten per cent of the country is unemployed. The cost of healthcare continues to soar. And few are confident they have secure pensions. With myriad unresolved political headaches to boot, consumer confidence is a luxury of the past.

In the face of such obstacles, Germany's adland hangs under a cloud of subdued optimism. "The German advertising market is beginning to recover, although it's stuttering," Hans-Henning Wiegmann, the president of ZAW, the umbrella organisation for Germany's numerous advertising associations, observes. He believes the climate will improve, but cautions: "The weak upturn will not be enough to repair the damage that the advertising industry has suffered during three years of recession. It will take many years to recover."

During those three lean years the media industry lost a total of 4.1 billion euros of advertising revenue. "Nevertheless, we expect total adspend to grow about 2 per cent this year, which would be well over 29 billion euros," Wiegmann says. This total includes production costs, media spend, fees and salaries.

Two per cent seems to be a popular figure these days. In the GWA Spring Monitor, agency members also predicted a 2 per cent growth in business for this year. ZAW predicts the same uplift in net advertising revenue for the media business.

Figures from Nielsen Media Research paint a rosier picture, gross adspend having risen by 6.5 per cent during the first half of 2004. "During the past 12 months, the market has shown steady overall growth," the research company reports. TV advertising was up 4.4 per cent compared with last year. The general mood of the TV sector, which takes 42 per cent of Germany's total advertising spend, is "reasonably optimistic".

"We are picking up speed," Peter Christmann, the executive board member for marketing and sales at Germany's biggest broadcaster, ProSiebenSat.1, and the head of SevenOne Media, the group's sales and marketing arm, says.

Christmann expects 3 per cent net growth in the German TV market next year.

Germany's mighty print media, the country's dominant advertising sector, are showing some recovery too after a torrid period. According to Nielsen, gross adspend in newspapers was up 12.4 per cent between January and June this year, while consumer magazines saw spend grow 5.1 per cent.

But recovery will not come easy. Hans-Peter Eisinger, the global media director of one of Germany's largest print advertisers, the Munich-based Siemens, says: "In recent years there has been a lot of competitive pressure in the print sector with many new titles entering the market. But now, as we're seeing in the advertising market as a whole, I expect print spend to stay fairly flat, or grow slightly. If we actually see the 2 per cent uplift ZAW is predicting, I'll be well pleased."

Whether or not Germany's rebound creeps above the magic 2 per cent figure, the country will be left further behind by its European rivals. The latest ZenithOptimedia adspend forecasts pitch Germany, with growth of 2.6 per cent for this year, well below the expected 4.2 per cent figure for Europe as a whole. As for the other four of Europe's top-five markets, they are all growing considerably faster. France will grow by 3.2 per cent, Italy by 3.9 per cent, Spain also by3.9 per cent and the UK market by 4.4 per cent, the media agency predicts.

Lothar Leonhard, the chairman of Ogilvy & Mather Frankfurt, sees two major obstacles to growth. The first is a foible of the German mindset.

"Germans are absolute perfectionists when it comes to putting a practice in place. This goes for cost control, too. I've a suspicion they have taken cost-cutting too far - certainly further than our European neighbours," Leonhard says.

The other is Germany's place in the world order. "Since the German economy is the biggest in Europe, it's critical that German divisions of multinationals make healthy contributions to the company's bottom line," he explains.

"Because this isn't happening, company managers have to find other ways to make up the difference. Often the victim is the advertising budget. I know multinationals that have cut adspend to zero."

Ogilvy & Mather has weathered the crisis better than most, compensating for shrinking budgets with new business. Still, Leonhard does not expect German agencies to enjoy any growth this year. "Where would it come from?" he asks.

Well, according to Nielsen, there are a few industry sectors on which Germany's adland is pinning its hopes. While the majority are freezing or cutting budgets, Germany's telecoms, financial services and discount retailers are where the growth is coming from.

It is Germany's mighty discount retailers that are said to be having the most telling, and most visible, impact. In fact, the likes of the now-internationally-famous Lidl and Aldi brands are regarded by many as wolves in sheep's clothing.

Yes, they are by far Germany's biggest advertisers, ferociously battling it out in the mass media for market share. Lidl spent 156 million euros in the first half of this year, an increase of 26 per cent. Saturn, the electronic store chain, hiked spend by 57.5 per cent over the same period.

But the messages these advertisers are sending consumers are said to be rotting the very industry they are supposedly sustaining.

Saturn is now famous for its "Geiz ist geil" slogan, which roughly translates as "it's cool to be a miser". Critics claim the campaign, by Jung von Matt/Fleet, is one of a generation of ads telling consumers not to consume, to indulge in bargain-hunting and to shirk premium products.

Unsurprisingly, Bent Rosinski, the chief executive of Jung von Matt/Fleet, does not see it that way. "All the retailers are doing is using their strongest selling point - price - at a time when consumers are very price-conscious. It is the manufacturers' problem if they find it hard to counter the price argument and win people over with added value," he says. He views the price-aggressive advertising messages of discounters as a positive challenge for the branded goods industry: "The effect should be to shake up their strategies; prompt them to do more in terms of product innovation and strengthening their brands."

The recession has left its mark on the creative side of advertising too.

There aren't many cutting-edge campaigns around these days, Rosinski grumbles, but maybe this is set to change. Advertisers, he says, want to achieve the same impact with a smaller budget. It seems that some are coming to realise this could be done simply by being more creative.

"We're seeing change with some of the big clients. But there is still too much bland mainstream stuff being produced," Jurgen Bertrams, the chairman and executive producer of one of Germany's leading production companies, Telemaz Commercials, and on the board of VDW, the German association of advertising film producers, says.

Bertrams is happy to report that the order books of Telemaz, as well as those of his rivals, are filling up nicely after the horrendous fall-out of 2002 and 2003. But while the volume of orders is rising, profits are slipping.

At least things are looking up for the many qualified advertising professionals out of work. In 2002, job offers had plummeted by 59 per cent and in 2003 by 5 per cent, according to figures from ZAW. In August, ZAW reported an increase of 80 per cent during the first half of this year.

So there is light at the end of the tunnel. But Leonhard cautions his peers not to hope for a quick return to pre-recession days. "We have to be prepared to do business in a market that is going to shrink before it grows again. We will just have to adapt to working under very different conditions," he says.

A relieved but world-weary Denker shares that view. "The golden days are over," he sighs.


COUNTRY Advertising

spend (dollars m)

Germany 17,690

UK 15,904

France 9,319

Italy 7,281

Spain 5,298

Russia 3,300

The Netherlands 3,223

Poland 3,027

Greece 2,324

Source: ZenithOptimedia.


Jan - June 2004

euros share

000s %

TV 3,692,762 42.0

Newspapers 2,222,804 25.3

Consumer magazines 1,909,881 21.7

Radio 472,719 5.4

Posters 284,980 3.2

Trade magazines 213,225 2.4

Source: Nielsen Media Research 2004.


Jan - June 2004

euros change

000s %

Lidl 155,820 26.0

Aldi 118,969 51.1

Media Markt 103,490 48.3

C&A 70,846 0.8

McDonald's 56,208 8.0

Schlecker Drugstores 46,621 66.1

Saturn 45,726 57.5

Plus Discount Stores 41,527 -37.3

Premiere Pay-TV 36,686 -17.8

Penny Discount Stores 31,132 41.3

Source: Nielsen Media Research 2004.

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