Whatever Happens, Happens: Ad Shops Play Waiting Game to See if Hispanic Ads Can Resist Slowdown
The Hispanic market has muscled its way into advertisers’ wallets with growth that has outpaced the rest of the U.S. population. But advertising executives are divided on whether a looming economic slowdown will derail the segment’s expansion this time around.
In past slowdowns, ad agencies saw budget-conscious companies slice their Hispanic marketing programs first to cut corners and focus on “core” business activities.
But things are different this time around, some local ad executives say. Now, they argue, more companies have realized the buying power of Hispanics,some 35.3 million people with about $480 billion in annual spending power. The lure, they say, is that devoting dollars to Hispanic ad programs can yield quick results,even in tough economic times.
But no one can be sure how the Hispanic segment will fare. At least two local Hispanic ad shops doubt whether the market can resist an economic downturn, especially as companies pull back on advertising to preserve profits.
“I think we’re in for some tougher times going into the rest of the year,” said Robert Howells, chief executive at Newport Beach-based Mendoza Dillon & Asociados Inc., OC’s largest Hispanic ad agency. “As clients look to make their numbers and sales start to fall off, they’ll start to pinch their budgets. In some cases, when the general market budget gets pinched, we get pinched even more, which is very painful.”
Mendoza’s challenge is to sell clients on the results of incremental Hispanic market spending, Howells said. But some companies still view the segment as an “opportunity rather than a necessity,” he said.
“In reality, in markets like California, Texas and South Florida, their base business is Hispanic,” Howells said.
So far, Mendoza’s business is holding steady, Howells said, with reported growth among retailers. But he said a number of advertisers continue to grapple with their Hispanic ad budgets for 2001.
“They have some things committed for the first quarter,” he said. “Beyond that, they’re still considering whether they want to cut toward the back half of the year, depending on how the economy goes.”
Clients are cautious,and in some cases panicked,over dipping stock prices, said Paul Casanova, president of Irvine-based Casanova Pendrill Publicidad Inc., OC’s second largest Hispanic ad shop. He said some companies are not committing to full-year budgets and are making revisions before submitting plans.
The agency, however, continues to pick up business, reporting a $30 million to $40 million increase in billings last year as a result of its acquisition by New York-based Interpublic Group of Cos. and from normal business, he said.
“We can’t possibly be immune (to a softening in the economy),” Casanova said. “We’re part of an overall program, and if the program is reduced we’re part of it. We shouldn’t be anything different or special.”
But not everyone is bracing for a pinch.
Agencies may report different things depending on their client mix, said Horacio Gomes, president-elect of the McLean, Va.-based Association of Hispanic Advertising Agencies board of directors. Hispanic ad spending in the U.S. has grown 20% each year for the past two years and has shown it can withstand economic downturns, he said.
Still, he said, indicators show growth for ad spending in the Hispanic market slowing to a 13% to 15% rate this year, according to the association.
Total ad spending in the U.S. was $186 billion last year, with about $2 billion spent in the Hispanic market, the association said. Based on the population, Hispanic ad spending should be more like $20.5 billion, according to the association.
“When we had the last recession, Hispanic advertising had some of its best years,” said Gomes, who also is chief executive of HeadQuarters Advertising Inc. in San Francisco. “When recessions hit, generally speaking, corporations gravitate toward market opportunities that can turn into sales right away. The Hispanic opportunity is a good one.”
Daisy Exposito-Ulla, president of the association’s board of directors and president and chief creative officer at The Bravo Group, the Hispanic arm of New York-based Young & Rubicam Inc., also pointed out that Hispanic ad spending is growing faster than general ad spending. At the same time, the segment is capturing a bigger chunk of general market dollars, she said, and Bravo is projecting 10% growth this year.
“General marketing budgets may not be growing, but the Hispanic budget seems to continue to make inroads into that general budget,” Exposito-Ulla said. “It’s happening little by little, but we’re getting there.”
Hispanic ad shop Siboney USA, which has a regional office in Santa Ana, has seen clients across the board expand campaigns this year, according to Joseph G. Albonetti, executive vice president and general manager at Siboney USA-Los Angeles in Santa Ana.
“For the most part, companies are building brands methodically,” he said. “They’re not going to cut a budget that’s working for them and paying them back.”
Among Siboney’s clients expanding Hispanic advertising are big names such as Colgate-Palmolive Co., Nestle USA, Pennzoil-Quaker State Co. and Advantica Restaurant Group Inc.’s Denny’s. Many companies view the segment as a way to build incremental sales with a relatively modest investment.
Still, Sonia Gutierrez-Carstensen, president of Adelante Hispanic Advertising, a division of DGWB in Santa Ana, said some clients are hesitant to invest in Hispanic marketing “until they can do a good job in general marketing.”
Education plays a key role in getting clients to invest in Hispanic advertising and convincing them to stick with it when tough times hit.
So far this year, Adelante’s clients are either maintaining Hispanic ad budgets or increasing them. One that’s stepping up spending is Tricon Global Restaurants Inc.’s KFC Corp., which “recognized that spending 100% of their advertising budget toward reaching 60% of the total market consumer was not moving the needle in terms of increased sales and profitability,” Gutierrez-Carstensen said.
Two years ago, Adelante worked with KFC’s Los Angeles franchises and reallocated a small portion of their ad budgets toward Hispanics. Now the LA franchisees devote 1/3 of their ad budget to Hispanic ads, which has helped them gain market share, she said.
Meanwhile, at Tustin-based al Punto Advertising Inc., clients such as The Pillsbury Co. and Ocean Spray Cranberries Inc. also are spending more on Hispanic advertising, according to Peggy Goff, the firm’s president.
“When things are bad, sometimes the niche targets are more attractive, as they are less developed by the competition and offer a faster and more efficient return on investment,” she said. n
