GREY OUT IN SHIFT BY KRAFT

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In a cost-cutting drive, Kraft Foods made a rare agency realignment last week, shifting nine assignments and eliminating Grey Advertising, New York, completely as a creative shop.

The shift saw Grey lose creative for businesses spending more than $100 million combined, including Post cereals, Minute rice and Kool-Aid. Grey retains agency of record status for Kraft's spot TV and children's media buying. No buying assignments are affected. Televest handles network and syndicated TV; Leo Burnett USA has print.

"With these changes, our agency alignment reflects the way we are marketing our products to leverage our scale more effectively," said Robert Eckert, president-CEO at Kraft.

COMMISSION LOSS

The changes are also connected to Kraft's decision to discontinue paying its agencies a commission on what it's calling "non-working media," including advertising production, talent and residual costs. Kraft said in order to compensate its agencies sufficiently after the loss of those commissions, it was necessary to trim its roster to give surviving agencies enough business.

Although Kraft said its media commissions to agencies -- now believed to range between 10% and 13% -- won't change, agencies said discontinuing "non-working media" commissions will effectively lower the overall take of Kraft's agencies by 1 percentage point.

"The increased volume of business enhances [an agency's] profitability," said a Kraft spokeswoman. "It's really just redeploying the money."

With the shift, Ogilvy & Mather, New York, already agency for Post kids' cereals, picks up the assignment for adult cereals Grey had handled, with O&M picking up Honey Comb. Spending on the cereals at Grey fluctuated from a high of $80 million to an estimated $50 million this year. O&M, which already had Country Time, also picks up Kool-Aid powdered soft drinks, which Competitive Media Reporting said received $22 million in measured media support for the first 11 months of 1997.

MULTIPLE ACCOUNTS MOVE

Grey's former $8 million Minute rice business and the $1.5 million Baker's chocolate account moved to Y&R Advertising, New York. O&M, in turn, gives over the $14 million Shake & Bake coating mixes business to Y&R. Grey also loses Stove Top stuffing mixes, a $17 million account, to Foote, Cone & Belding, Chicago.

In other shifts, Kraft's $600,000 Light N' Lively cottage cheese account at Y&R moves to J. Walter Thompson USA, Chicago, and the $8.5 million Good Seasons salad dressings account moves to Leo Burnett USA, Chicago, from JWT.

Burnett already handles Kraft brand dressings, although Kraft had tapped Grey for a salad dressing campaign several months ago that's believed still to be in test. DiGiorno pastas and sauces, now at Burnett, move to FCB, Chicago, which has DiGiorno Rising Crust Pizza.

In an internal memo, Grey CEO Edward Meyer said, "Our lack of global assignments (our brands are not global) combined with Kraft's recent reduction from seven domestic divisions to four made us vulnerable."

Kraft downsized its corporate structure beginning last summer, melding several divisions together in a move that created a Coffee & Cereals and a Beverages & Desserts division. This year Kraft also reconfigured its Meals & Enhancers unit and redubbed it New Meals division.

SWEEPING CHANGE IN EXECS

Along with those shifts, Kraft has seen some sweeping changes in its executive ranks. Mr. Eckert was named president-CEO following the departure of his predecessor, Robert Morrison, for Quaker Oats Co. last October. At least two division heads shifted leaders: Ann Fudge, former Maxwell House president, became president of the Coffee & Cereals group, while Betsy Holden was named president of the cheese division.

Agency churn on Kraft business has also been strong in the past year. At Grey, longtime exec VP Carol Herman left last month, as did creative director Scott Kulok. At JWT, Chicago, Kraft Exec VP-Worldwide Director Lori Donchak announced she also was leaving the agency in a move said to have blindsided the client.

An agency executive familiar with the Kraft changes said Grey was eliminated largely as a result of the client deciding to consolidate Post advertising at O&M. "They liked the creative well enough but O&M had been providing a higher quality of service and continuity," he said. Alluding both to turnover at agencies on the business and the solidity of the account relationships, he summed up: "O&M, FCB and Y&R get the bulk [of the new business]. JWT and Burnett live to fight another day."

Contributing: Mercedes M. Cardona.

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