The online marketplace unveiled by Procter & Gamble Co., Coca-Cola Co., Unilever and other leading package-goods companies won't just be buying corn syrup and plastic: It is likely to ultimately become the way the industry buys media, too.
Formation of the package-goods marketplace comes hard on the heels of the announcement of a similar venture between General Motors Co., Ford Motor Co. and DaimlerChrysler. Although media buying is not an initial focus for that venture, GM is weighing a plan to buy TV ad time over the Internet.
The 50 grocery suppliers that make up the yet-unnamed alliance will concentrate on pooling power to buy raw materials at first. But they have also discussed purchasing media through the consortium. Such a move would dramatically transform the buying process for billions of dollars in advertising spending.
"Although it has not been identified as a first priority, [media buying] is certainly one of the services that has been discussed as an opportunity where we can gain efficiencies," said Bill James, senior VP, Grocery Manufacturers of America, under whose umbrella the consortium has formed.
MEDIA AGENCIES SKEPTICAL
Media agencies and media sellers are skeptical about the prospect and insist ad time and space can't be priced and sold the same way as ingredients for food products.
"The media process isn't as straightforward as moving a pint of chemicals or purchasing spark plugs," said Ginger Kraus, chief marketing officer and senior VP-business development at AdOutlet.com, which connects media buyers and suppliers. "The problem is that the same piece of media has different value propositions to different people."
Twenty of the top 100 U.S. advertisers are involved in the grocery venture, including some bitter rivals. In addition to the companies named earlier, participants include Kraft Foods, Nestle USA, PepsiCo, Johnson & Johnson, Novartis, Colgate-Palmolive Co., Clorox Co., Campbell Soup Co., Nabisco and S.C. Johnson & Son.
"We are looking at [the exchange] for the full range of goods and services" that Unilever purchases, said Tony Romeo, chairman of the company's North American Interactive Brand Center and a member of the executive steering committee for the online buying venture. "We haven't specified what's in and what's out."
Unilever has "already done a lot to make our media buying more efficient," he said. "But e-commerce will open up possibilities to make further improvements at some point."
P&G, the biggest advertiser in the group, said buying media through the consortium hasn't yet been discussed within the company. But P&G didn't rule out the possibility. Raw materials would likely be the initial focus, a spokeswoman said.
P&G in the past resisted joining purchasing consortiums because "we felt we could do it better on our own," said Jim Van Cleave, former VP-media and programming for the company. "I think the reality is the more money you pile together, the more leverage you get with the supplier. . . . and I think it makes all the sense in the world."
SEEN AS AN 'EXCHANGE'
Mr. Romeo said confidentiality for member purchases is key, whether they're buying sugar or 30-second commercials.
"The concept is very much that this is going to be a marketplace and exchange rather than just an aggregation of demand," he said, adding that elements of auctions, catalog purchasing and other procurement systems might be included.
The consortium came together during just two weeks, said one executive familiar with it. Talks were sparked in part by the beating member companies had been taking in the stock market and to help dispel the industry's "old economy" image. Interestingly, many of those blue-chip stocks rebounded last week.
A media-buying consortium would address package-goods companies' waning clout in a media marketplace they've increasingly been priced out of by dot-coms, telcos and drug companies, said media consultant Erwin Ephron.
"Agencies, for all of their protestations, really can't combine advertiser dollars for buying," Mr. Ephron said. "Advertisers don't like them to, because they think, 'Why should you use my money to get [competitors] a cheaper price?' And it's not the way the networks sell. But if [marketers] have a consortium . . . it changes the dynamic completely."
"You have to adapt your capabilities to transact business through Web-based platforms, whether you're a retailer, manufacturer or media buyer," said Rich Kauffeld, president of Campbell Soup's e-Team@campbellsoup division. But, he added, "It's a lot easier to assume that manufacturers will have common ways of buying paper or corn syrup than it is to assume that commonality for media, advertising and promotions, which are fundamental elements of how we compete."
Contributing: Jennifer Gilbert, Jean Halliday, Ira Teinowitz, Mercedes M. Cardona
Copyright March 2000, Crain Communications Inc.