Class of 2001

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The class of 2001 package-goods CEOs who graduated to lead Campbell Soup Co., Gillette Co. and Hershey Foods have more in common than their alma mater, the tobacco-stained halls of Philip Morris Cos.' and R.J. Reynolds Holdings' food units.

Gillette Chairman-CEO James Kilts, Campbell President-CEO Douglas R. Conant and Hershey Chairman-CEO Rick Lenny all left Nabisco following its acquisition by Philip Morris and integration into Kraft Foods earlier this year. They are all expected by analysts to increase ad spending behind their brands, applying the formula of new products and increased marketing support that helped turn around Nabisco Foods, ultimately making it a target for Philip Morris Cos. The question is, how well will they succeed?

Hershey ad spending was already up in the first quarter to about $48 million, an increase of more than 20% over a year ago prior to Mr. Lenny coming on board. But while Mr. Lenny has been circumspect about providing numbers, Merrill Lynch food analyst Leonard Teitelbaum expects a longer-term increase in ad spending as the new CEO benchmarks Hershey spending against that of competitors.

Mr. Conant isn't expected to formally share his long-term plans for Campbell until July, but Goldman Sachs analyst Romitha Mally last month said she expects Mr. Conant to significantly increase marketing spending along with product development costs. Increased ad spending behind Campbell Soup already carved about $10 million off Campbell's earnings last quarter. The company spent $220.8 million on U.S. advertising last year, according to Taylor Nelson Sofres' CMR.

And Mr. Kilts last week said Gillette, which spent $177.4 million on measured U.S. advertising last year, will likely need to increase ad support. He didn't specify how much would be needed to reverse a long-term erosion of ad spending.

EFFORT TO REVERSE EROSION

Whether the suddenly trendy notion of turning up ad support to rekindle growth will stick or just be another chapter in the industry's long-term cycle of advertising binges and purges is open to debate.

Burt Flickinger, managing partner with Reach Marketing, Westport, Conn., sees a similar philosophy coming out of Nabisco in the moves by the new CEOs. "Across consumer goods, most of the companies have been looking for greater advertising and media-buying efficiencies, and after achieving those efficiencies ultimately cut budgets," Mr. Flickinger said. "Nabisco went counter-trend and felt the best way to drive demand was to create demand through more effective and better communications but also higher media weights."

But it isn't just Nabisco the trio have in common. The three spent formative years of their careers at Kraft; Messrs. Kilts and Conant began their careers at General Mills in the 1970s before moving to Kraft, while Mr. Lenny began his career at Kraft before moving to Pillsbury Foods, then Nabisco.

Mr. Kilts had been president-CEO of Nabisco prior to its acquisition by Philip Morris. Mr. Conant was president of Nabisco Foods under Mr. Kilts, while Mr. Lenny reported to Mr. Kilts as president of Nabisco Biscuit Co.

Mr. Kilts "saw the ... demands of RJR tobacco litigation and fighting off ... corporate raider bandits not only hurt [Nabisco] sales and share but also had let competitors like Keebler gain on them," Mr. Flickinger said. "He saw investment in advertising was his best possible investment and provided higher returns than trade spending."

UBS Warburg food analyst John O'Neil agreed Messrs. Conant and Lenny will likely join Mr. Kilts in increasing ad support. But he believes the move is driven more by the needs of their companies than by a singular philosophy.

"Another common thread here is that some of these companies have cut their advertising over the past several years to prop up margins in the short term, so part of what you're seeing is restorative advertising increases," he said.

"These companies are facing the long-term, short-term dilemma. Far too often these companies have chosen to meet the short-term needs of Wall Street."

The parallels aren't complete, however. Though Campbell and Gillette are clearly turnaround stories following years of declining ad support and earnings disappointments, Hershey had already turned the corner from problems related to a 1999 computer-systems-related distribution snafu. "Hershey on cruise control has very strong volume growth, and there's an opportunity to enhance and accelerate that," Mr. O'Neil said. "Whereas the other companies need to get themselves back on track."

Hershey's deficiency in ad support was failing to provide enough backing for established brands, such as Hershey chocolate bars, in favor of new products, Mr. Flickinger said. That's a deficiency previous Chairman-CEO Kenneth Wolfe had already begun to address with new advertising for Hershey.

But Banc of America Securities food analyst William Leach sees a familiar story in Campbell and Gillette that doesn't bode well long-term for advertising.

"All of these consumer companies have a similar pattern that's almost humorous," said Mr. Leach. "You have the earnings disappointments. You have the new CEO. The new CEO takes down the [earnings projections, in part to raise ad spending]. The new CEO has easy comparisons for three or four years. Then the new CEO starts cutting advertising rates again."

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