WPP blames Uber, zero-based budgets and Brexit as brands remain cautious over ad spend

Despite its “strong” start to 2016, advertising giant WPP, which owns agencies including JWT and Grey, says there is increased pressure on its clients as they find themselves having to compete with new disruptors like Airbnb and Uber as well handle a potential Brexit.

Sir Martin Sorrell

The ad giant, which saw revenue rise 10.5% to £3.1bn for the first quarter of 2016, reported strong growth in all its regions including Britain and North America. Yet despite the “encouraging” results and a positive outlook for the rest of the year, WPP chief executive Sir Martin Sorrell believes brands remain cautious when it comes to ad spend and are heavily focused on cost-cutting.

“Procurement and finance remain the dominant functions for understandable reasons, with marketing taking a back seat,” he says, adding that many of WPP’s clients, which include Samsung, Nestle and Universal Music Group, are facing new challenges, leading to “considerable pressure in the system” and a short-term focus on results.

“If you are running a legacy business, as many of our clients are, you face disrupters like Uber and Airbnb at one end of the spectrum, zero-based cost budgeters like 3G and Coty at the other end, with seemingly short-term focused activist investors in the middle, like Nelson Peltz, Bill Ackman and Dan Loeb. There is, therefore, considerable pressure in the system,” he explains.

“Moreover, the average managerial life expectancy of a United States CEO is currently six to seven years, a CFO five to six years and a CMO two years, although the latter has improved from 18 months recently! This cocktail of difficult trends result, logically, in a short-term focus, reinforced by the needs of quarterly reporting and similarly focused, short-term, institutional investor measurement and incentives.”

READ MORE: Consumer confidence stalls as Brexit concerns ‘hit home’

From a political perspective, the potential that Britain might leave the EU after the referendum in June also concerns Sorrell. Recent reports show that confidence levels among consumers and marketers are dropping as concerns about Britain’s status in Europe increase.

He concludes: “In the immediate future, we face the Brexit vote in the UK in June, where it is generally agreed by both sides that an ‘out’ vote will result, at least in the short- or mid-term, in GDP weakness in the UK, the EU and possibly globally, let alone further political and economic uncertainty in the U around Scottish Independence and further disintegration of the EU.”