P&G Plans to Cut $500 Million in Agency Fees by Shrinking Its Roster
Procter & Gamble Co. plans to cut as much as $500 million from agency fees under a new drive to reduce the number of agencies it works with, Chief Financial Officer Jon Moeller said on the company's earnings call Thursday.
"One non-media area that offers significant opportunity is agency spending, which includes fees and production costs of agencies we use for advertising, media, public relations, package design and the development of in-store materials," Mr. Moeller said. "We plan to significantly simplify and reduce the number of agency relationships and the costs associated with the current complexity and inefficiency while upgrading agency capability to improve creative quality and communication effectiveness. We see an opportunity for up to half a billion dollars of of savings in this area along with stronger communication to consumers."
Though P&G doesn't disclose its total spending on agency fees, executives close to the company have estimated them at around $1 billion.
The move comes as P&G's top-line results disappointed Wall Street, with organic revenue growth rising 1% last quarter, below the 2% projected by many analysts, and as P&G plans to step up its headcount reductions. Mr. Moeller said that by end of the current fiscal year in June, P&G would hit the high end of its current plan to have reduced non-manufacturing headcount by 22% over two years. Now, it's stepping up planned job cuts to a 25% to 30% reduction by the end of next fiscal year, exclusive of the impact of divestitures.
Mr. Moeller said P&G is on pace with its plan to sell, spin off or merge 100 brands, leaving it with 65 and shedding around 15% of sales – or around $12 billion annually. He said the bulk of divestitures, widely expected by analysts to include salon hair care, fragrance and cosmetics brands, should be announced by summer. As it stands, P&G has announced divestitures of 40 brands representing around 40% of its goal -- or $5 billion of sales.
Already announced divestitures include Iams, Duracell, DDF, the Ace bleach business overseas and a number of small fragrance brands, such as the Avril Lavigne license.