Parmalat's ad agencies are relegated to limbo

Milan - January, 24 2004

Before its name became synonymous with brazen financial fraud, Parmalat Finanziaria sought global brand recognition through the sponsorship of high-visibility sporting events like Formula One racing, Alpine ski championships and soccer, from top league team Parma to little league soccer in Canada. The company also relied on its marketing and communications strategy to build brand loyalty, entering new markets with aggressive advertising campaigns and successful promotions. To that end, top-name ad agencies were hired throughout the world, including Kaplan Thaler Group in the United States, DM9 in Brazil, Goodgoll Curtis in Canada, and Ogilvy Mather in Capetown, South Africa, bringing Parmalat recognition - and commercial success - with award-winning campaigns. But just as they were beginning to plan Parmalat's 2004 communications strategy, ad agencies, television broadcast groups and advertising sales representatives saw their cash cow run dry. In the United States, Parmalat in December embarked on an advertising campaign to change the branding of its Sunnydale Farms milk to Parmalat. A few weeks later, Parmalat declared insolvency, after it emerged that a network of offshore companies were used to invent up to $11 billion in assets to offset huge liabilities on the company's published balance sheet. Virtually overnight, Parmalat ads disappeared from television, which accounts for about 80 percent of its budget, and print media. The advertising companies have now been relegated to limbo with other Parmalat creditors, who are waiting to see what Enrico Bondi, the man the government appointed chief executive will do with the company. "When everything is frozen there's no money for anyone - and unfortunately we're part of that anyone," said Marco Muraglia, of Muraglia, Calzolari Associati, a media agency in Milan that works closely with Parmalat on the Italian market, where Parmalat said it spent around E35 million, or $44.5 million, last year. Parmalat did not give figures for its global advertising budget. According to Andrea Paladini, an analyst at Centrosim in Milan, Parmalat is estimated to have spent an average 7 percent to 8 percent of its total revenue annually on global advertising. The company reported sales of just over E7 billion last year. "That's comparable to other food conglomerates like Danone or Nestlé," Paladini said. Enrico Montangero, the president of AssoComunicazione, the Italian association of advertising and communications companies, said that several agencies affiliated with his group had sustained "significant damages" because of the bankruptcy. In Italy, Parmalat was not considered a particularly big spender in the ad world: "below average compared with its turnover," according to Muraglia. According to Nielsen Media Research statistics published in the economics daily Il Sole/24 Ore, Parmalat opted to push certain products over others in the local market. In the first 10 months of last year, Parmalat outspent its competitors to plug UHT milk, spending E7.8 million compared with E.6.3 million for its rival, Granarolo. Outside of the core long-shelf-life milk product, though, Parmalat was more spare. Parmalat spread its overall local advertising budget over many ad agencies in Milan, so no one agency has been particularly exposed to the company's troubles. Jonathan Grundy, director general of Saatchi Saatchi, said loss of revenue for his agency was "very limited and easily assimilated thanks to a particularly fortunate year for our agency." Despite the company's downward spiral, no agency seemed eager to jump ship, at least not before Parmalat is declared irrevocably unsalvageable. Marco Dalbesio, Parmalat's account director for yogurt at McCann Erickson, which also handles advertising for UHT milk in Italy, said his firm was "waiting to see what develops in Parma." The head of another Italian ad agency, who asked not to be identified, said that firm, too, was in a holding pattern. Advertising industry analysts agree that Parmalat must jump back onto the ad wagon as soon as Bondi, the turnaround expert, has decided how the company would be restructured. "It's difficult for the company to decide its strategy until it knows what its core business will be," said Enrico Valdani, a professor of marketing at Milan's Bocconi business school. Once that decision had been made, however, he said the company would need to move quickly to re-establish trust and its reputation with consumers. Montangero of AssoComunicazione agreed. He said he believed people would continue to buy Parmalat in the short term, "because the company is now identified with suffering workers." But the pity angle, he said, had a limited shelf life. "People have short memories," he said. "If marketing slows down for too long, people will move to more publicized brands." A glimmer of hope emerged this week when a first line of credit of E150 million was approved for the company. "This means that the marketing department will be proposing new advertising strategies," said a source close to Parmalat. "The company has to carry on."

Elisabetta Povoledo (International Herald Tribune)