Agencies expand during downturn

The agency business in North America has been hit by a lot of discouraging news over the past year with much of it beginning even before Sept. 11. Layoffs and cutbacks have been announced by all the major agency groups and even industry icon Fallon in New York recently cut a wide swath through its creative department.
The Canadian industry has had its casualties but it's also had successes. Some of that success has been captured by entrepreneurial agencies that have thumbed their noses at the economy and forged ahead with expansion plans within Canada as well as in the U.S. and Europe.

The agency business in North America has been hit by a lot of discouraging news over the past year with much of it beginning even before Sept. 11. Layoffs and cutbacks have been announced by all the major agency groups and even industry icon Fallon in New York recently cut a wide swath through its creative department.

The Canadian industry has had its casualties but it’s also had successes. Some of that success has been captured by entrepreneurial agencies that have thumbed their noses at the economy and forged ahead with expansion plans within Canada as well as in the U.S. and Europe.

One of the more high profile expansions took place last August when Cossette Communication-Marketing used some of the $40 million raised through a public offering to take the Cossette name to the U.S. market via acquisition of Post & Partners (now Cossette Post) of New York. The agency was not deterred by the ‘R word’ because, according to the agency’s president and CEO Claude Lessard, the poor state of the U.S. economy made it a buyers market.

Cossette grows organically in that it makes acquisitions and opens offices to fulfill client needs, primarily those of its largest, BCE. Using that strategy, besides New York, Canada’s largest agency has offices in Vancouver, Edmonton, Winnipeg, Toronto, Montreal, Quebec City and Halifax as well as an office of Optimum Public Relations in Washington D.C.

While perhaps not on such a grand scale as Cossette, a number of other agencies in Canada have also taken the expansion plunge using the same ‘organic’ approach. The most aggressive firms are Canadian-owned and finding that not being tied to shareholders or a multinational parent gives them the flexibility of investing now and reaping the rewards later.

Montreal-HQ’ed market research outfit Leger Marketing also recently moved into the U.S., via a six-person shop opened in New York to service American clients such as AT&T. The company, which is keeping a staff of 350 busy for clients such as Loblaw, also has offices in Quebec City, Winnipeg and Toronto.

Meanwhile, Perennial, a 12-year-old Toronto-based retail firm, recently opened an office in Montreal and is now in the midst of opening a U.K. operation. It also has a research and development facility in St. Catharines, Ont.

Chris Lund, president of Perennial, says the company is also working in the U.S. and will likely open an office in the northeast – Boston or New York.

‘If our growth over the past four years and the last 24 months in particular is indicative, I would think within the next 24 months we’d want to have a representative office down there,’ says Lund. ‘When our clients feel they need [us] on the ground closer to them, then we’ll go.’

Lund says one of the keys to the company’s success is the strategic decision made about four years ago to focus on retail.

‘Any element of the business – merchandising, store planning, in-store communications, out-of-store advertising, or driving traffic into the store – we’ve got people that are focused and experienced in doing that, so we’re not a design house or agency that handles just one piece of their puzzle. I think that’s made a big difference in our ability to help these clients.’

Lund says being a wholly owned Canadian company enables Perennial to take advantage of growth opportunities. He says agencies that got caught up in the acquisition mania of the past four or five years are shackled by being part of publicly traded or multinational companies. They have to pay too much attention to return to stakeholders to be able to invest in their future.

Perennial’s Montreal office was set up to provide better service to Provigo, Boulangeries Westons Quebec and Blinds to Go in the Quebec marketplace. The new U.K. office comes from the desire of a couple of its North American clients to move into the U.K. Additionally, Lund says, a few of its clients have U.K. parents who, impressed with Perennial’s work for subsidiaries, are interested in working with the firm as well.

The skill sets at Perennial run the gamut from architects, store planners, industrial designers and engineers to packaging professionals and those with retail operation and merchandising experience.

The shop began with a staff of two people. Today it has a staff of 70 in three offices, plus one new person so far in the U.K. start-up, and boasts companies such as Loblaws Supermarkets, President’s Choice Financial, Corby Distilleries, Canada Post Corporation, Sleeman Breweries, Effem Foods, Weston Bakeries, Neilson Dairies, Provigo, Blinds to Go and U.S.-based Shaw’s Supermarkets as clients.

With its focus on retail, people might think that Perennial’s clients would be cutting back, particularly after a less than stellar holiday shopping season. Lund says that isn’t the case. Perennial’s clients, he says, are leaders in their categories and don’t leave any gaps in their strategies: whether it’s design, merchandising, advertising or operations, everything hangs together.

‘Our clients manage very carefully the promise or perception they create out of the store. They’re big on under-promising and over-delivering. When I think of Loblaws, one of our biggest clients, they constantly strive to excite and celebrate the differences of customers as they come into the store.’

Well-managed and future-focused clients are definitely a factor helping Canadian agencies grow.

Alan Quarry, president of Quarry Integrated Communications in Waterloo, Ont., another agency that’s expanding its piece of the pie, says while his clients aren’t recession-proof, they are strong marketers who understand branding and customer-focused marketing. ‘[Our clients] don’t look at economic downturns as the end of the world and pull back on their relationship and brand building in the marketplace,’ says Quarry. ‘They may have to slow down because of market conditions but they know we’re going to pull through and they’re going to be ready for the future.’

Quarry also agrees with Lund’s assessment that being independent is a boon for agency growth. ‘We’re not owned by anyone in New York or London or Paris so as we look forward – which quite frankly is never longer than three years out – we may decide that this is going to be a leaner year from a bottom line perspective, but the investments we’re going to make are going to pay off or capitalize next year.’

Quarry says his 29-year-old agency made a decision to become a North American business in the early ’90s and has experienced steady and even exceptional growth since then. Quarry now has offices in Toronto, Dallas and a service office in Memphis, Tenn. The company is currently looking to open offices in Kansas City and San Francisco. Client needs are again dictating the locations for expansion.

Quarry purchased an agency in Dallas because of long-time client Nortel Networks and now has a nice base of eight staffers and five major clients there. The Memphis office primarily works with FedEx and the need for a Kansas City location came about last year after the company won the business of a division of Sprint PCS based in that city.

‘It’s so simple. This is a relationship business and even with the great strides we’ve made in technology, we find the best way to help our clients succeed is to have our people with them as often as possible,’ says Quarry.

From 10 people in 1990, Quarry grew to 60 people by 1995 and today has more than 130. Gross income has been averaging more than 20% growth year over year with 34% growth from 1999 to 2000.

Quarry is primarily a business-to-business shop although it does some consumer branding work for Research In Motion’s Blackberry hand-held device.

Along with its decision to expand into the U.S., Quarry also restructured itself by building teams around client needs rather than departmentalizing its integrated services.

The firm also worked with the University of Texas at Austin to create Brand Experience Labs, a sort of interactive focus group experience that watches consumers interact with client Web sites to ensure usability and consistency of the brand experience across platforms. It has labs in Waterloo and Dallas and is opening one in Toronto.

Quarry clients also include BASF, the Elanco/Provel division of Eli Lilly, and Hoffmann-La Roche.

Grey Worldwide Northwest of Vancouver has also expanded into the U.S. with an office in Seattle, Wash., but this time it’s a move that Tim Johnson, president and CEO, says was possible primarily because the agency is part of a multinational network. ‘The fact we’re Grey helps a lot as does the fact we work on Starbucks in the region. The Canadian dollar is a benefit, certainly the clients do appreciate the obvious value of the services in the context of what they have to pay, but I think that’s after the fact. We still have to be hired on our capabilities.’

The agency has been working with Starbucks in Seattle for more than four years and over that time, the number of assignments it’s been getting from the coffee chain has steadily increased. Grey now does work for Western Canada and south into the U.S. to Colorado and Utah.

Johnson says with each of those incremental assignments, the agency became so comfortable working in Seattle and the American Northwest that it began to partner with another Grey Global Group company, APCO Worldwide, a Seattle public affairs firm.

Grey Vancouver has now taken space for a service office in the APCO offices and has picked up more U.S. business via pitches of its integrated services with APCO. Those accounts include HVTN, the HIV Vaccine Trials Network, a coalition of 27 major research centres headquartered in Seattle. A campaign for another client, the Vaccine Fund, was launched in the U.S. to coincide with the recent World Economic Forum in New York. The Fund, a worldwide organization working towards global immunization, has offices in Washington, D.C. and Lyons, France.

Although Grey also has offices in Los Angeles and San Francisco, Johnson says Vancouver isn’t stepping on any toes with its expansion. The network now has a pretty substantial presence in western North America and the agency offices often work together, Vancouver and San Francisco share the business for PMC Sierra, a Vancouver-based technology company with a large presence in Silicon Valley and worldwide.