REGIONAL FOCUS: MINNESOTA - Turbulent time for Twin Cities. As theharsh economic climate takes hold, PR firms in Minnesota are loweringthe bar on their revenue expectations. John Frank reports

Paul Maccabee often bumps into other PR firm owners when he works

out at his local gym. They usually exchange pleasantries without getting

into too much nitty-gritty business talk. But a recent mid-workout

conversation with the boss of another Twin Cities firm took Maccabee

completely by surprise.



While both headed for the stair machines, Maccabee, head of The Maccabee

Group, asked his competitor how business was. At first, he got the

standard response: "Great, just great." But then, says Maccabee, "we

both paused and he said, 'Oh God, it's been tough.'"



Indeed, for the majority of Minnesota PR shops, 2001 will go down as the

most difficult year in the past decade. At most of the major agencies,

revenues range from flat to down. The Minneapolis office of Weber

Shandwick Worldwide, by far the biggest local player, reported $22.2 million in income for 2000, but will come in at only $19.5

million this year.



"There's a general conservatism across the board with budgets," explains

Sara Gavin, president of WSW Minneapolis. "Clients are spending

carefully this year, and they need their dollars to count." The PR staff

at the office has fallen accordingly, from 180 last year to 114

today.



Number-two shop Padilla Speer Beardsley has also been feeling the

effects of "a tough year." CEO Lynn Casey is expecting low single-digit

growth, compared to a 24% gain last year and average growth of 19% over

the past five years. IR work from public offerings disappeared as

companies postponed or cancelled their IPOs. "This year, there were none

(in the Minnesota market)," says Casey. "I can't remember when that has

happened."



The St. Paul-based agency has been trying to reduce staff through

attrition rather than layoffs, she says. It's also taken on more

pro-bono work to keep the staff busy. "The majority of our clients are

paring back their budgets," says Casey. "Just about everything is being

pared back."



So much so, that many firms are satisfied with just matching last year's

revenues. Carmichael Lynch Spong, the fourth-largest PR operation in the

Twin Cities, is typical of this outlook. "Our attitude this year is flat

and happy," says managing partner Doug Spong. While revenues were up 2%

in the first half of the year, the office will end 2001 at about the

same $6.5 million in revenues it reported last year. The agency

has cut staff from 45 to 40, but like Padilla and most sizeable

Minnesota shops this year, reducing staff through attrition has been the

rule.



Fallout from the technology sector has also taken its toll, of

course.



At one time, Fleishman-Hillard's local office did 20% of its business in

tech accounts. "It's obviously been difficult for some of our clients

and, in a way, for us," says general manager Frank Parisi. He hopes to

see revenues up slightly from last year, thanks primarily to increased

work with food company Hormel.



The Garrity Group also grew in the seven years since its founding by

going after technology clients. As tech cooled, "this was probably one

of the most challenging years I've seen," says founder Ann Garrity.

Revenues this year will be $635,000, compared with $660,000 last year - a 5.3% drop.



Most firms, it seems, are preparing for a bleak winter. "If anyone says

they're doing just great this year, I don't know if I'd believe them,"

says Glenn Karwoski, SVP and managing director with Karwoski & Courage

Public Relations. Revenues for his shop will be down about 10% this year

to $3 million, but he says he'll still be profitable. "We have

not lost any clients, but almost across the board, everyone is spending

less."



Little guys showing strength



Smaller firms have fared a little better, however, with many managing to

stay even with 2000 revenues by going after small project work.



New School Communications, a $750,000 13-person shop, has seen

its revenues grow 50% this year as it works with such clients as the

National Institute on Media and the Family, producing that group's

annual video game report card. It also recently won an 18-month, $200,000 project with Metro Transit, a government agency that oversees

the mass-transit system in the Twin Cities area.



Maccabee expects his revenues to be within 10% of last year's, and is

still planning to give out bonuses. But his nine-person shop is also

stepping up new business development, and meeting with ad and

promotional agencies to see if they need PR help. "We're plugging deeper

into our network than ever before," he says. Expenses are also being

cut: "Every single outside expense that we would normally rubber stamp,

we're looking at," he says.



A couple of market sectors are providing real bright spots on the

Minnesota PR landscape. Public affairs is one. Himle Horner expects

revenues to climb 30% this year compared to 2000, thanks mainly to its

public affairs work. And with guber-natorial elections next year,

principal Tom Horner expects the demand for public affairs help to

escalate.



Healthcare has been another bright spot. However, a controversy earlier

this year involving PR firm GCI Tunheim and a major local healthcare

provider (the state attorney general questioned the fees that were paid

to the agency) could make healthcare executives think twice about using

outside public affairs help. But Kathy Tunheim, who sold her firm to GCI

earlier this year, insists the incident didn't hurt business. She

expects revenues to be 5%-10% ahead of last year's $6.5 million.

And she doesn't think the flap discouraged other firms from taking on PR

counsel. "There will always be controversy around the marketing of

healthcare," she says.



But others aren't so sure the incident hasn't had market

repercussions.



"The industry here was stunned when that story broke," says one local PR

person, who asked not to be identified. "Every PR agency was buzzing

about, asking, 'What does this mean for PR in this community?'"



Adds Horner, "Frankly, I think it's still in the back of a lot of

people's minds. It's going to be there for a while."



Sectors left out in the cold



Other sectors haven't fared well. The food and financial services

industries have long been mainstays of the Minneapolis PR scene, but

this year, even clients in those sectors have taken a careful look at PR

spending. The events of September 11, for many, triggered decisions to

postpone projects originally planned for the fourth quarter into next

year.



"We really haven't cancelled anything; we just postponed," says Kim

Olson, director of brand public relations at food giant General

Mills.



One major promotion scheduled for the second half of September has been

pushed back to next year, for example. "We're trying as much as we can

to go back to the (PR) basics," she says. That means talking about

family and basic needs that General Mills' food products address. With

media focused on the aftermath of September 11, hopes of getting

significant media play for new products has been scaled back. "We're

certainly setting expectations differently," she says.



The Minnesota PR world is waiting to see how the recently approved

merger of General Mills and neighbor Pillsbury will impact PR spending

by the combined company, as both have long used a variety of agencies

for branding work. However, Olson says it's too early to discuss the

merger's impact on PR usage.



The tough time ahead



As long as clients keep pushing back projects, agencies will continue to

have a tough time. And that's translating into the Minnesota PR job

market where salaries are falling and experienced people are willing to

work below their skill levels.



"Two years ago, you couldn't find good people," says Riff Yeager, SVP

and director of PR with Colle & McVoy. "Right now, there are very good

people looking for work." That has translated into lower salary requests

as well.



"We're getting people saying, 'here's my salary request, but I know

that's out of whack now,'" says Beth LaBreche, a partner at LaBreche

Murray Public Relations. Her firm expects revenues to be flat this year

at $1.9 million. Echoing the situation at most local firms, she

adds, "We haven't lost a lot of clients; there's just a lot that have

gone dormant."



LaBreche has started offering a series of fixed-rate PR services, hoping

that will appeal to clients worrying about controlling costs. She's also

seen clients ask to move from a monthly retainer arrangement to a

project arrangement, even though they often end up spending about the

same. "It's just a mindset," she says.



Maybe, but it's a mindset that could spell a rough 2002 in the world of

Minnesota PR.



MINNESOTA PR AGENCIES

Rank Firm Name Revenue (dollars ) Increase Staff Location

2000 2000 (%)

1 Weber Shandwick Worldwide 22,389,000 33 241 Minneapolis

2 Padilla Speer Beardsley 9,281,426 28 83 St. Paul

3 Tunheim Group 6,547,691 30 63 Minneapolis

4 Carmichael Lynch Spong 6,465,562 31 43 Minneapolis

5 Fleishman-Hillard 6,450,000 47 36 Minneapolis

6 Morgan & Myers 2,949,353 17 20 Minneapolis

7 Goff & Howard 2,240,610 4 15 St. Paul

8 PR21 413,716 536 N/A St. Paul

9 Connors Communications 90,664 -89 3 Minneapolis

Source: Council of PR Firms Auditing: No audit was required for

inclusion in the rankings. The CEO/CFO/principal was required to sign a

statement verifying the accuracy of the data and agreeing to possible

participation in a random audit Disclaimer: While every effort has been

made to ensure the accuracy of these figures, PRWeek cannot accept

liability for, nor make financial guarantees based upon the information

in this chart.



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