Spanish-Language Ads Are Catching On With Agencies in Southland

Dolores Valdes-Zacky still remembers the question.

It was several years ago, when she was head of a new Latino advertising division at J. Walter Thompson’s Los Angeles office. The agency was about to make a pitch to create ads for Arrowhead Drinking Water Co., and she suggested presenting some ads in Spanish for Latino customers.

An executive asked her point blank: “Do Hispanics drink bottled water?” Instead of answering right then, Valdes-Zacky spent the next few days at some area shopping malls with a video camera. She asked a number of Latinos if they drink bottled water and videotaped their answers. When she returned, her bosses came to realize that Latinos are indeed good customers for bottled water. The agency followed Valdes-Zacky’s advice and not only won the Arrowhead account but also persuaded the company to start making ads aimed specifically at Latinos.

At that time, only a few Los Angeles ad firms knew much about creating ads in Spanish. And of those that did, most just dubbed Spanish translations into English commercials.

But no more. To its credit, J. Walter Thompson is one of the only mainstream ad agencies in Los Angeles with a division that produces Latino ads. For her part, Valdes-Zacky has left J. Walter Thompson and last year opened her own agency. Other specialists as well are setting up shop in Los Angeles, joining several independent Latino ad agencies that have been around since the 1970s.

In less than two years, the number of Latino ad firms with big-name clients in Los Angeles has almost doubled. “Los Angeles has become the national headquarters for Hispanic advertising in the U.S.” said Hector Orci, president of La Agencia de Orci y Asociados. “This is where the Hispanic market is.”

Indeed, 31.3% of the U.S. Latino population lives in California, according to a recent Census Bureau report. Texas ranks second with 20.2%, and New York is a distant third with 11.1%.

“It used to be tokenism to advertise to Latinos,” said Richard E. Dillon, whose 10-year-old Newport Beach-based specialty ad firm, Mendoza, Dillon & Asociados Inc., is the biggest Latino ad agency in the nation. “But now, some advertisers sense that reaching this market is not just an opportunity, it’s a necessity.”

Perhaps that explains why three big California advertisers--GTE, Levi and Disneyland--are all in the midst of deciding which agencies will handle their Latino advertising. Disney will spend $1 million this year advertising to Latinos, and other national advertisers, like McDonald’s and Pepsi, will spend many times that.

These advertisers all know that they’ll have more talent to choose from than ever before, since the number of Latino ad firms continues to grow--especially in Los Angeles. And that comes at a time when several mainstream New York ad agencies have closed their Los Angeles offices. While general advertising spending in the United States grew about 7% in 1987, money spent on Latino advertising last year jumped 23%, according to the publication Hispanic Business.

As a result, it is no longer just mom-and-pop ad shops that specialize in developing ads for the Latino market. Two international advertising holding companies--WPP Group and Saatchi & Saatchi--have purchased Latino ad firms. But at the same time, some entrepreneurs have recently left the Latino divisions they ran at large U.S. ad firms and started their own specialty ad agencies.

All are attracted by the same growth projections. By 1991, advertisers are expected to spend more than $1 billion to reach the Hispanic market, compared to about $510 million spent in 1987, Hispanic Business estimates. And an estimated 54% of the nation’s overall population growth over the next 25 years will be Latino, the Census Bureau says. “Hispanics can make the major difference in the success of a brand,” said Kevin R. Rogers, vice president of Research Resources, a Westlake Village research firm that tracks the Latino market.

It wasn’t until the 1980 Census projected big growth for the nation’s Latino population that some major advertisers began paying greater attention to Latinos. Some still ignore the market, and Latino ad executives claim that mainstream ad firms are partly to blame for that. After all, no matter how fast the growth rate of Latino advertising, the money that big advertisers spend on it will always fall far short of mainstream advertising. Besides, it requires extra expenses to set up a Latino division, and many agency executives are still unconvinced that they will see any of that money back. “The only reason that most major agencies are now sitting up and taking notice of the Hispanic market is because their clients are forcing them to,” said Valdes-Zacky.

In California, there was a flurry of interest in the Latino advertising community two years ago when the California State Lottery went looking for a minority agency for $9 million of its annual advertising budget. This money was to be spent on ads that would be placed in the state’s Latino, Asian and black communities. That account was eventually won by Casanova Pendrill Publicidad Inc., an agency that also creates Latino ads for General Mills and Nabisco products.

Along with the new interest in Latino advertising came more Latino ad firms. One of the new agencies was founded by Orci, who said he was disturbed that “the priority inside mainstream agencies is very, very low” for Latino advertising. As a result, he left the Latino division of mainstream McCann-Erickson and formed La Agencia de Orci y Asociados. It handles Latino advertising for Disneyland as well as the Immigration and Naturalization Service.

Last year three Latino ad firms opened their doors in Los Angeles. Valdes-Zacky left J. Walter Thompson’s Latino division, Hispania/West, to form Valdes-Zacky Associates. Also, one of Mexico’s largest ad firms, Publicidad Ferrer, in a partnership with American ad firm DJMC, created a joint venture agency called Ferrer/Ad America Inc.

And finally, the New York-based Latino ad firm Conill Advertising Inc., which is owned by the British-based ad giant Saatchi & Saatchi, opened a full-service office in Los Angeles. “The potential of L.A.’s Hispanic market is tops in the U.S.,” said Leila Winick, manager of Conill’s Los Angeles office. “Conill needed a presence here.”

Even with all of this growth, no one could have predicted the sudden interest in Latino advertising by the international ad giants. In December, WPP--the British firm that owns the J. Walter Thompson ad agency--surprised the ad world when it purchased Mendoza Dillon for $25 million. “All of a sudden,” said Carl Kravetz, general manager at Ferrer, “those of us who had already thought of ourselves as visionaries began to wonder if our visions were big enough.”

Normally, Kravetz figures, an ad agency would need annual billings of about $120 million to sell for that price. But Mendoza Dillon posts annual billings of about $40 million. “It made us all wonder, does WPP know something about Hispanic advertising that the rest of us don’t?”

Perhaps. In fact, WPP Chairman Martin Sorrell says he is still looking to buy more specialty ad shops. “We’re looking for key markets, like Hispanic advertising, where the growth rates are substantially higher than mainstream advertising,” Sorrell said in an interview just two days after his company bought Mendoza Dillon.

Despite the new competition, however, executives say there’s still room for growth. “I don’t particularly like the fact that so many companies are coming in and nibbling away at our business,” said Eduardo Bermudez, chief executive of a Latino ad shop that has been in Los Angeles since 1975, Bermudez Associates. “But the amount of work coming down the pike is a lot more than we can handle ourselves.”

Still, last year Bermudez’ agency lost one of its biggest clients, Pacific Bell, to a local rival. Although Bermudez said that winning and losing accounts is all part of the advertising business, the loss of the Pacific Bell business has forced him to “look deeper” at his own company. His agency’s annual billings have slipped to $16 million from the previous year’s $20 million.

Latino ad firms face other obstacles as well. Executives say that some advertisers--most notably financial institutions and cosmetics manufacturers--have been very slow to reach out to the Latino market. And some Latino agency executives say that when big companies slash their ad budgets, Latino advertising is often the first to go. “Some advertisers seem to be afraid of Hispanic advertising simply because they don’t understand it,” said Margie del Castillo Gostylia, vice president at Valdes-Zacky Associates. “But that isn’t a good reason to get out of it. It’s a good reason to look at it more closely.”

Most executives, however, who have set up new Latino ad shops here see only big growth ahead. Orci, for example, expects his agency’s annual billings to continue to grow at a 30% clip. But his agency is in danger of losing its biggest client--Disneyland--to tiny newcomer Valdes-Zacky, which last week was named one of three finalists in Disney’s review of its ad business.

“We all seem to be making inroads,” said Valdes-Zacky, “no matter how little we are.”

LARGEST SOUTHLAND LATINO AD AGENCIES

BILLINGS YEAR NAME (millions $) CLIENTS OPENED Mendoza, Dillon $38 Johnson & 1979 & Asociados Johnson Newport Beach Miller Brewing General Foods Bermudez Associates 20 AT&T; 1975 Los Angeles Stroh Brewery Noble & Asociados 16 Procter & 1977 Irvine Gamble Casanova Pendrill 12 California State 1984 Publicidad Lottery Irvine General Mills Nabisco Brands Hispania/West 10 Vons 1982 J. Walter Thompson Mexicana Los Angeles Airlines Arrowhead La Agencia de Orci 9 Disneyland 1986 & Asociados Pepsi Los Angeles INS Ferrer/Ad America 7 McDonald’s 1987 Los Angeles Knott’s Berry Farm Ralphs Grocery Valdes-Zacky 2 Supercuts 1987 Associates Tianguis (Vons) Los Angeles Conill Advertising 1 Texaco 1987 Los Angeles Standard Brands Paints