Martin Sorrell And The Mad Men Have An Amazon Problem: Gadfly

By Steve Wynne-Jones
Share this article
Martin Sorrell And The Mad Men Have An Amazon Problem: Gadfly

When you run an advertising agency, your clients' problems are your problems. That's why Martin Sorrell, the CEO of WPP Plc, has spent so much time fretting about Inc. lately.

The makers of consumer and packaged goods, which are among the world's biggest advertisers, are spooked about Amazon's pending $13.7 billion takeover of U.S. supermarket chain Whole Foods Market Inc.. For Procter & Gamble Co. and Unilever Plc, the deal's direct impact will initially be modest given Whole Foods' tiny market share and high-end positioning. But given how fast shopping is changing in the Internet era, it underscores how consumer goods companies' prices, margins and customer loyalty face long-term threats.

Faced with weak growth and pressure from activist investors, makers of everything from canned soup to laundry soap are slashing costs to fatten margins, with marketing spending as key target. Unfortunately for WPP, it gets about 30 percent of annual sales from crafting ad campaigns and advising makers of packaged foods and consumer goods. That's a slightly higher proportion than other ad groups.

Scaled Back

So WPP's decision on Wednesday to scale back its annual organic revenue growth target to between zero and to 1 percent instead of the 2 percent originally predicted shouldn't have come as a surprise: the contagion threat from the consumer goods sector was clear as far back as April. But the company's announcement still sent the shares down by as much as 12 percent.

WPP isn't alone in facing slackening growth: other ad agencies like Omnicom Group Inc. and Publicis Groupe SA are also suffering. The sector now trades at a lower multiple of earnings than it did at the start of the year.


Of course, Amazon didn't cause the problems plaguing consumer goods companies, but, man, is it lighting a fire in the boardrooms. With the Whole Foods acquisition, Amazon will blur the distinction between online and offline shopping in ways that aren’t yet understood. For consumer and packaged goods makers, Amazon's growing clout will accelerate many strategy debates: they've got to figure out how to keep control over customer data, maintain ties with shoppers, and neutralize the threat from cheaper store brands. In the old days, when suppliers had to deal with big retail outlets like Tesco Plc or Wal-Mart Stores Inc., the power dynamics were more balanced than they are with Amazon.

Just think of the additional sales volume Amazon can generate for Whole Foods' 365 Everyday Value product line, which includes everything from moisturizer to peanut butter. Amazon has already stealthily launched dozens of its own so-called "private label" brands, and can quickly colonize entire categories. Sorrell is fond of citing research that Amazon now sells more of its own "Amazon Basics" batteries in the U.S. than Duracell batteries.

Voice Assistance

The advent of voice-activated home assistants like Amazon's Alexa or Google's Home hub is another source of stress for consumer goods companies. When you say "Alexa, buy me some diapers", will Amazon send you its in-store brand or follow your shopping history and send you P&G's Pampers? Concerns over such behavior just led Walmart to unveil a deal with Google.

These are all existential questions for big brands, and its the job of WPP and other ad agencies to help them find answers. The role of the advertising agency is much broader than it was in the hey-day of the Mad Men era when the 30-second TV spot was king. Today, they work with big bands on a multitude of projects to boost sales: gaming the product searches algorithms of Google and Amazon, providing data on customers to help target campaigns, and devising new subscription-based business models.


The fates of the two sectors are closely linked, for good and for ill. Sorrell is the industry's elder statesman. With Amazon taking aim at his clients, that will be an increasingly uncomfortable position.

--Gadfly's Elaine He contributed charts.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

News by Bloomberg, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine.

Get the week's top grocery retail news

The most important stories from European grocery retail direct to your inbox every Thursday

Processing your request...

Thanks! please check your email to confirm your subscription.

By signing up you are agreeing to our terms & conditions and privacy policy. You can unsubscribe at any time.