P&G to slash roster for $3B retail business

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Procter & Gamble Co. has asked its two main agency holding companies, Publicis Groupe and Grey Global Group, to pitch plans to consolidate or re-organize its global retail marketing effort, estimated at $3 billion in the U.S. alone and now handled by about 60 shops.

Executives of Publicis and Grey are set to meet with P&G Global Marketing Officer Jim Stengel later this month to lay out plans and "what-if scenarios" for consolidating or coordinating P&G's far-flung retail marketing business, said one executive familiar with the situation. A decision could come by Labor Day.

A P&G spokeswoman wouldn't provide details, but termed the talks "part of the ongoing discussion we have with our partners."

Both Publicis and Grey have specialized retail co-marketing agencies- Saatchi & Saatchi Collaborative Marketing and Grey's J.Brown/LMC Group-that already handle some of the work and could grab more.

Grey executives could not be reached for comment. A Saatchi executive referred calls to P&G.

The effort is driven not so much by cost cutting but by concerns over maintaining quality and brand equity in programs that span dozens of countries and agencies, said executives close to the process. P&G also is concerned that its best practices discovered in particular countries or with particular retailers aren't being replicated quickly enough because of the multitude of agencies and managers involved in developing and executing programs.

P&G has never disclosed spending on trade promotion or on retailer-specific marketing programs, but industry yardsticks indicate the outlay is huge. Consumer package-goods companies on average will spend an all-time-high 17.4% of sales on trade promotion in 2003, according to a Cannondale Associates survey released last week, and trade promotion will make up 54% of overall industry marketing spending. Retailer-specific spending accounts for another roughly 10% of marketing budgets.

big money

Based on P&G sales and Cannondale industry averages, P&G likely spends more than $2 billion on trade promotion and another $1 billion on retailer-specific marketing programs in the U.S. alone. Retail marketing has become a major focus of hundreds of P&G marketing executives globally since a 1999 restructuring created regional market development organizations to handle sales and local marketing initiatives.

"P&G is working feverishly to get better [in retail marketing]," said Ken Harris, a partner at Cannondale. "This is just one more step in the process."

Despite all that money and attention, however, P&G's reputation in the eyes of U.S. retailers slipped behind that of Altria Group's Kraft Foods in the past two years after nearly a decade at the top of the industry, according to Cannondale. Retailers in its 2003 survey still rank P&G best in trade promotion strategy, but behind Kraft in execution and overall performance.

P&G is looking for "an agency they want to marry who's going to be able to provide this long term, because the change they're talking about making is pretty profound," said Mr. Harris. "Whether it's Publicis or Grey, it's going to be unlike any engagement they've ever had before. ... I'm sure [P&G is] going to see better creative coming from these two shops than they've seen in a long time."

An executive close to the discussions, however, said consolidating all of the retail marketing business with one or even two agencies would be impossible because of the demands of major retailers, many of whom prefer to have their own P&G agency to avoid conflicts and sharing of ideas with other retailers.

While Mr. Stengel is working with P&G's agencies on developing a solution, decisions ultimately rest with P&G's global market development organization, headed by Vice-Chairman and President Kerry Clark. Directly in charge of the project is Kesir Sharif, global director of customer marketing.

Wal-Mart factor

Complicating matters is that while P&G's market development organizations work regionally, several leading retail customers, such as Wal-Mart Stores, which single-handedly accounts for 18% of P&G business, are global. Independent Thompson Murray, based in Johnson City, Ark., handles Wal-Mart in the U.S. and has been part of a retail marketing effort that has won P&G's internal award for such programs two years running. But different agencies handle P&G Wal-Mart teamwork globally, including J.Brown/LMC Group in Mexico.

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