Proactive Investors - This week's big strategic update from Unilever PLC (LON:ULVR) appears to raise risks for advertising agencies that it uses, said UBS, reiterating its 'sell' rating on WPP PLC's (LON:WPP).
Alongside scooping out its ice cream division, Unilever's announcement of an acceleration of its growth action plan also includes the launch of a €800 million productivity program, with various cost savings.
UBS noted that the maker of Marmite, Pot Noodle, Domestos and Cif is the ninth largest global advertiser, according to AdAge rankings, and spent around €8.5 billion on brand and marketing in 2023.
It is one of WPP's top 10 clients, with WPP providing significant services across media (brand media, performance media, retail media), creative (communications, production, limited experience/commerce) and some PR.
The announcement from Unilever also follows reports in at the start of the year that a review of its worldwide media planning and buying account was being planned for the first time since 2021, which saw WPP's Mindshare retain the contract, though rival Publicis won the agency review to lead retail advertising in North America.
"Whilst we acknowledge Unilever's productivity program may appear to elevate risk for its ad agency partners, it is reassuring that cost savings are earmarked for reinvestment," said UBS, noting that this includes brand investments.
"Unilever has long been vocal that it intends to continue to reinvest in marketing (and R&D) and in FY23 the company reinvested more than half of its gross margin expansion into incremental brand and marketing investment."
Management at the Anglo-Dutch consumer goods group noted the company "will continue to step up investment in areas that drive impact and support improved competitiveness".
As a result, said UBS, "we expect that any material risk to Unilever's ad agencies stems from the outcome of its global media review".
However, analysts at the Swiss bank noted that WPP has "already lost" some key media accounts in North America last year and, based on press reports, is "will likely face competition from Publicis, who have been on a winning streak".