Scangroup grows its market share in first quarter

Scangroup deepened its dominance in advertising booked through agencies in the first quarter, gaining from increased spending by its blue-chip clients.
This has intensified competition against smaller agencies that rely heavily on small to medium-sized companies that spend less compared to the multinationals who advertise through Scangroup.

Data from research firm Ipsos Media shows that Scangroup’s market share rose to 77 per cent in the three months to March from 70 per cent in the year ended December.

“We continue to benefit from increased local spend by our multinational clients,” said Bharat Thakrar, Scangroup’s chief executive.

Airtel is Scangroup’s biggest client in a list of high-spending blue chips that include Coca-Cola, Reckitt Benckiser, Safaricom, Procter & Gamble and Nestle.

The company’s purchase of a 50 per cent stake in Ogilvy East Africa has further pushed its market share to 82 per cent, given that its partner firm had a five per cent share in the review period.

Ogilvy’s five per cent market share is, however, a drop from the eight per cent it held in December last year, joining the ranks of other agencies like Young & Rubicam whose market share fell to two per cent from nine per cent in the same period.

The rising dominance of Scangroup in the advertising market has raised fears of unfair competition against the smaller agencies, but Mr Thakrar says competition in the market is healthy.

He argues that Scangroup is only dominant in terms of advertising placed through agencies, which has been shrinking in recent years at the expense of direct bookings.

Advertising booked through agencies in the first quarter stood at 33 per cent, dropping from a 41 per cent in the whole of 2011. This has left Scangroup with an effective market share of 25 per cent in the entire advertising market, including direct bookings.

The drop in agency bookings has left the rivals to fight for the Sh6 billion worth of advertisement — excluding discounts — booked through them in the first quarter.

Access Leo Burnnet doubled its market share to six per cent in the first quarter from three per cent in 2011, while Mindshare Kenya also raised its share to three per cent from two per cent in the same period last year.

Although most agencies have ditched commissions for flat monthly fees for their services, the massive drop in agency bookings signals sluggish growth in the overall market.

While Scangroup’s market share rose significantly, analysts say the company’s performance this year hinges on its ability to control costs as it plans to make acquisitions in Nigeria, Angola and Mozambique.

Expansion on the continent has given it access to 14 markets following its tie-up with Ogilvy Africa, allowing it to lock in multinational clients seeking comprehensive marketing services.

Scangroup’s net profit stood at Sh911.1 million last year compared to Sh640.5 million in 2010 as revenues rose 53.3 per cent to Sh3.6 billion from Sh2.3 billion.