Winners Getting Bigger Chunks of $600 Mil. Budget
CHICAGO--The seven agencies that will handle Kraft Foods' consumer promotions will have full plates but work with lower profit margins, according to sources.
In giving fewer promotions agencies responsibility for more brands but with slightly lower fees, Kraft is repeating the approach it took in February when it consolidated U.S. creative advertising assignments at five shops, eliminating Grey Advertising. At that time, Kraft told the five roster agencies it would no longer pay commissions on what it called "nonworking media," such as ad production and talent and residual costs.
Wendy Kritt, Kraft's director of corporate and consumer promotions who helped direct the process of reducing the promotions roster from perhaps 30 agencies to the seven announced last week, would not discuss the company's compensation arrangements other than to say it was seeking to balance billings among the shops it selected.
Kraft spends about $600 million annually on consumer promotion programs, Kritt said. Of that, sources estimate agency fees represent upwards of $100 million. The Northfield, Ill.-based company spent $820 million on advertising last year, according to Competitive Media Reporting, and spent a similar amount on trade promotions, Kritt said.
She did confirm that Kraft is continuing similar reviews to pare down the number of agencies responsible for its direct marketing, co-marketing (account-specific programs) and co-op media.
The six agencies selected to handle general market promotions and their key brand assignments are Colangelo Group, South Norwalk, Conn. (Capri Sun, Handi-Snacks, Kool-Aid, Tang); Davidson Marketing, Chicago (Lunchables, Oscar Mayer, Kraft Grated and Natural Cheeses, Velveeta, DiGiorno pasta, Tombstone pizza); East/West Creative, Chicago and New York (Crystal Light, Jell-O, Clausen, Louis Rich, kids promotions); Frankel & Co., Chicago (dips, Philadelphia cream cheese, Kraft Macaroni & Cheese, Miracle Whip, Kraft Mayonnaise, cross-brand meal promotions); Guild Group, White Plains, N.Y. (Baker's, Cool Whip, Country Time, General Foods International Coffees, Yuban); and Ryan Partnership, Chicago and New York (Post, corporate multibrand promotions).
Guild Group will also handle African American consumer promotions, and Zubi Advertising in Coral Gables, Fla., will handle Hispanic advertising.
The consolidation will allow Kraft to "leverage [our] scale to develop stronger relationships with our core agencies ... and realize cost efficiencies," said Paul Sneed, Kraft's senior vice president of marketing services, in a statement announcing the new agency alignment.
All of the chosen agencies are independents, while such units of advertising networks as True North's Impact Communications and Young & Rubicam's Wunderman Cato Johnson were cut. Kritt called that a coincidence and not the result of any plan to exclude agencies or favor independents.
"Our criterion was only whether they were world-class agencies who shared and understood our vision for creating world-class promotions," Kritt said. "We asked all the shops, on our roster or outside, a lot of questions about their strategies for building our brands and what they can do toward that end."
Kraft will continue to work with additional promotions agencies on specializations such as entertainment and event marketing (GMR Marketing, New Berlin, Wis.) and game and sweepstakes administration (D.L. Blair in Garden City, N.Y., and Cyrk-Simon in Gloucester, Mass.). The seven brand agencies will develop ideas that the specialty shops will help execute, Kritt said.
Of the seven agencies selected, only Frankel was not already on the Kraft roster, although the two have worked together in the past. The Kraft account will be handled by the agency's newly formed Frankel Packaged unit, which also handles promotions for Nestlƒ beverage brands and Frito-Lay's Cracker Jack and Planet Lunch snack packs.
"It was a long process," Frankel president Jim Mack said of the review, which began early this year. "But they did a good job of outlining what they wanted to do, their expectations from their agencies and how the relationships would be formed."
Jay Farrell, president of Davidson Marketing, said Kraft's goal "of building stronger, more intimate relationships with a smaller number of agencies is better" for both the agencies and the client.