Big Losses Cut Into California Agencies

In handing oversight of Foote Cone & Belding’s Irvine, Calif., office to FCB San Francisco last week, reducing Irvine to a service office for Taco Bell, Gene Bartley cited a single reason in an internal memo: “The business situation in California has changed over the last several months.”

Bartley, president and COO of Interpublic Group’s FCB North America, was referring to his own network’s situation. But other agencies in California would agree with the sentiment. Some of the larger shops in the region seem to be experiencing something of a reverse gold rush, losing big accounts to rivals often located outside the West.

FCB Irvine and San Francisco have lost what was left of its once-prominent status on the $210 million Taco Bell account to FCB Chicago. It has also relinquished business to shops in its own region, with WPP Group’s Young & Rubicam in Irvine taking the lion’s share of the $40-50 million Hilton Hotels business in July (the FCB network retained the corporate brand work) and O’Leary and Partners in Newport Beach, Calif., picking up the $15 million Kawasaki account last November.

But Y&R has seen accounts run eastward as well, losing Jaguar ($100 million) in March and Sony Electronics ($100-125 million) in June to Euro RSCG in New York and McKinney + Silver in Durham, N.C. Y&R’s Jaguar loss came just months after IPG’s Deutsch/LA in Marina del Rey lost Mitsubishi ($290 million) to Omnicom Group’s BBDO, which is dividing it among New York, Atlanta L.A. and San Francisco. Deutsch/LA also lost its Coors Light work to FCB Chicago.

In July, Omnicom’s Goodby, Silverstein & Partners lost the $340 million Subway account to MMB in Boston after less than a year on it. And while independent davidandgoliath in L.A. kept Kia ($270 million), last month it lost Outback Steakhouse ($80 million) to Publicis Groupe’s The Kaplan Thaler Group in New York. (Davidandgoliath is also now defending its Bacardi account.)

Executives put a brave face on the shifts. “The pace of review has quickened, which creates dynamism,” said Y&R managing director David Murphy. “There’s no indication of a market trend going back east. Besides, if we think we have a hold on business just because of geography, then we’re only real-estate agents.”

One agency bucking the trend is Omnicom’s TBWA\Chiat\Day in Playa del Rey, which is expanding operations and has not suffered a significant loss in several years now. Robert LePlae, president and CEO of TBWA\California, suggested that “diversity of technology and speed of communications” means “regional hubs are less important. What this means for Los Angeles is that the New York-based networks no longer have the same needs for regional operations. A byproduct of this is the rise of the regional ‘destination’ agencies.”

Added another agency president: “The conclusion you can draw, especially in light of the fact that Chiat is the home office [of its network] and is one of the only California agencies winning big new business, is that we’re suffering a period when the $100 million clients want to be with the motherships.”

“We don’t like to see business leaving California,” said LePlae. “It’s best for everyone here when multiple agencies are doing well.”

Prompted by the upheaval or not, several agencies are reshuffling management. BBDO restructured in the west last month, ousting president Tom Hollerbach and sending Peter Sherman in from New York as managing director. New York president and CEO John Osborn said the L.A. office “is expanding, if anything” as a result of the Mitsubishi win. “It’s about competing collectively,” he said. “I expect to see more and more creative interplay.”

At FCB, the future role of executive creative director Erich Funke, in Irvine for less than a year, is uncertain, said San Francisco president Dominic Whittles, who is now in charge of all Western operations. Whittles, one of three ecds in San Francisco (with Brian Bacino and Matt Reinhard), would not speculate on the fate of Funke or the Irvine office. “I can’t fill out the matrix until I talk to everybody,” he said. “We don’t want any casualties in this process.” But Whittles said he does expect FCB California to retain “a huge amount of autonomy.”