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Greg Delaney makes it a hat trick with DLKW Lowe deal

June 28, 2010

I think Greg Delaney deserves some sort of medal, quite possibly an Olympic one. Because he has just proved – beyond all doubt – that he is one of the smartest deal-makers in adland.

Success in building advertising agencies, as with comedy, is about timing. It’s all about knowing when to buy and when, at the top of your game, to sell. The slightly-built chairman of Delaney Lund Knox Warren has demonstrated this quality not once, not twice, but three times in his business career.

First, he was instrumental in the buyout of DLWK (then Delaney Fletcher Bozell) from Bozell Worldwide in 2000, then the acquisition of his agency by marketing services group Creston plc in 2005 for an astonishing £38m. Lastly, post earn-out, he has just engineered a management buy-in at Lowe London which values DLKW at £28m. The cash, stumped up by Lowe’s parent Interpublic, goes into Creston’s coffers. But the fact the new agency is to be known as DLKW Lowe rather than Lowe DLKW, tells you almost everything you need to know about the deal. This is a talented management team (consisting, among others, of joint ceos Tom Knox and Richard Warren) propping up a once-great agency name; tapping into a strong international network; and rewarding themselves, yet again, with a ride on the gravy train (this time with minority stakes in the new agency).

DLKW has never been regarded as one of the most creative agencies, but it has proved one of the best managed. Which is all the more commendable considering its start in life was almost an accident. Most agency breakaways are entirely fueled by their founders’ egos. DLKW’s foundation, by contrast, had more to do with a fortuitous set of circumstances. Bozell, its then network, was being merged and purged with group parent True North’s other arm, FCB. However, the London team would have none of a proposed merger with FCB’s Banks Hoggins O’Shea and, by an astonishing oversight, were allowed to go their own way.

Interpublic shortly afterwards acquired True North; and, as a consequence, a strategic stake in the breakaway agency, which it held on to until Creston bought DLKW lock stock and barrel in 2005. There was irony here. In the shorter term, DLKW proved a thorn in the side to Interpublic by hijacking most of wholly-owned Lowe’s UK General Motors business. In the longer term, however, the stake created a durable rapport and helped open doors when Lowe’s current network chief, Michael Wall, pitched up at Creston with an open cheque book earlier this year (A Wall of money).

Lowe needed to do a deal with someone, no doubt about it. It was that or close down the London office. Rapier and Dye Holloway Murray were also in the frame, but DLKW seems to have been the target, first and foremost. It’s a known, respected quantity and the brands fit.

But, one niggling doubt remains. If DLKW is so all-fired magnificent, why has Creston let it go for £10m less than it paid for it five years ago? At the time of acquisition, DLKW accounted for about half of Creston’s revenues, and even now the figure is roughly a quarter (£19.2m of £80.3m, in the year to March 31). In other words, the agency was, and remains, a major strategic asset.

Creston’s argument is that the money is better deployed elsewhere, in faster-growing assets such as digital. It’s certainly true that advertising is a less dynamic element of the group’s portfolio than, say, healthcare. Indeed, DLKW’s profitability appears to be flat-lining. According to “bottom line” wizard Bob Willott, DLKW group made a post-tax profit of only £1.9m in the last financial year – almost the same figure as that achieved when the agency and its small subsidiaries were first acquired. Above all, however, it seems to have been the flash of cash that did the trick. The £28m payable to Creston on completion is spookily adjacent to its debt pile of £25m. Shareholders were not slow to swallow the implications: Creston’s share price shot up.

Withering on the vine or not, DLKW certainly looks better placed to kick-start itself back into life as part of Interpublic than in the eccentric marketing services portfolio that is Creston. In Lowe, the boys have got themselves a bigger sand-pit to play in. Let’s see what they do with it.

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NICE oversteps the mark in ‘last hurrah’ against Big Food

June 22, 2010

If I were the chief executive of the National Institute for Health and Clinical Excellence, I would be very careful where I trod right now. Quangos are looking highly dispensable in the forthcoming Exchequer purge of the public sector.

So what does NICE do? It plays the turkey voting for Christmas. Twice in the past month it has come out with a series of recommendations that are not only – arguably – beyond its remit but are also like a red rag to the new blue-and-yellow striped government.

First, it called for a watershed ban on advertising alcohol, when the government has already ruled that out. Now, in the process of advocating a total ban on so-called trans fats and a general assault on salty foods, it has not only recommended another watershed ad ban (see above) but proposed the introduction of the “traffic light” colour coded food warning system only days after it was rejected by the European Union.

NICE’s raison d’être is to save lives by improving the quality of healthcare (and by implication reduce the heavy financial burden associated with it). There’s no doubting that trans fatty acid is a nasty substance that can cause heart disease by promoting “bad” cholesterol at the expense of “good”; and that it’s also a suspect in other disorders, such as Alzheimer’s, cancer, diabetes and infertility. Nor that it has, in the past, been widely used by the processed food industry as a shortening agent (eg in biscuits) and as a substitute for butter (for instance, in margarine). But it’s definitely on the way out. Some countries – among them Denmark, Switzerland, Australia and parts of the United States – have already prohibited it. Britain has not got that far yet, but since 2006 our supermarkets have employed a self-denying ordinance, and the food manufacturers have been quietly phasing it out.

NICE’s determination to rid us of this noxious substance is not as disinterested as the organisation would have us believe. Behind it seems to lie an agenda: a crusade aimed at the food industry in general, and its freedom of commercial expression in particular.

Of course, in the longer run NICE is right to flag up the trans fat issue. Sooner or later its harmful effects – like those of tobacco – are going to become big business for lawyers in the States. For NICE, though, there may not be a longer run, if it goes on behaving the way it is. Government ministers are likely to conclude it is an organisation out of control. And we know what that could mean in these austere times.


Bavaria beats up Bud in World Cup beer putsch

June 20, 2010

Despite its transcendent dullness to date, this year’s World Cup has managed to produce a few results of startling clarity, mostly of the negative kind. There’s England’s lacklustre performance, of course, and ITV’s stunning series of own-goals. But it’s the aggregate performance of the official sponsors I’m going to address here – and their need to get real; especially with FIFA, the organising body behind the tournament.

Exhibit One, a piece of market research carried out by Lightspeed, on behalf of our rival publication. Conducted at the time of the England v US match, it showed that only 8% of respondents thought sponsorship had a positive effect on their view of the brands involved. That, mind you, depended on whether they could identify those brands in the first place. Many could not. Quite a few, for example, reckoned Mastercard was a “partner” (30%), when it is not; only 37% gave the correct answer: Visa. A further 29% were highly impressed with Nike’s performance as a sponsor – except that, notoriously, it is not. The answer should be Adidas. Only Coca-Cola hit the button: a high correlation between correct identification and strong awareness; 65% of respondents got it right.

There is, by the way, nothing anomalous or even unusual in these results. Marketing Week has conducted similar surveys over the years, and come up with pretty similar conclusions. Coke scores well, and all the other sponsors are way down the league table; Nike scores too, but it’s offside.

Exhibit Two, the beer brand Bavaria. If you really want to make a name for yourself, don’t bother with official sponsorship (which would be difficult to afford anyway). Try causing a stir by breaking the silly FIFA-inspired anti-ambush laws and watch your brand awareness ratings shoot up.

Personally, I find the whole Bavaria brand proposition muddled. Orange lederhosen? Is it a German brand trying to cash in on a Dutch pedigree, or a Dutch brand trying to associate itself with the annual beerfest in Munich? In fact, the latter. There’s no denying the value of its stunt marketing, however. Those 36 Dutch female fans dressed in Orange miniskirts, whose presence cost ITV’s Robbie Earle his job, are likely to remain on our minds for years to come. More practically, bavaria.com –  whose web traffic was previously undetectable – has been translated into the fifth most visited beer website in the UK. And, according to Bavaria’s UK marketing manager, there has been explosive interest on Twitter and other social media.

Just a stunt whose effects will quickly fade away, you say? I disagree. Thanks to FIFA, Bavaria can now put into play a long-term brand strategy based around “Operation Martyr”.

Handily, the great clunking fist of FIFA has just landed a civil action on the brewer, guaranteeing it the oxygen of publicity for a long time to come. Better still – if not for Ms Barbara Castelein and Ms Minte Niewpoort – is the arrest of the two “ringleaders”, and the preferring of criminal charges against them by the South African police. A  show trial, followed by a custodial sentence could not be better calculated to vilify FIFA and curry favour for the beleaguered beer brand. And what about the subsequent “Free the Bavaria Babes” campaign? Plenty of potential there, I think.  It’s going to make the official sponsors, particularly Budweiser, appear rather stupid (those few we can remember, that is).

So why do the official sponsors bother? Good question, to which there is no convincing answer. We know why Coke does it. It has a long and consistent association with sport that makes the other sponsors look like dilettantes. As for the rest, who knows? Collective delusion? Brand vanity?


If oil’s the next tobacco, watch out Big Food and Big Booze

June 17, 2010

General Mills, the food giant that owns Cheerios, Häagen Daz and Green Giant, is breathing a sigh of relief after it suppressed a press release suggesting the US government was about to mount a full-scale investigation into its supply chain. The release was a hoax, but General Mills has no room for complacency. The threat of political interference in the food business could be very real if we extrapolate what the government has been doing to BP.

I owe the originality of this insight to the Financial Times’ John Gapper. Gapper’s argument, laid out in a column this week, is as follows. “Slick Willy” Sutton, the infamous armed robber, once observed that he raided banks because – that’s where the money is. In the same manner, US politicians – aware that they have to address a yawning budget deficit if they are to be re-elected – are casting around for easy money to plug the gap. Voters, impoverished by Wall Street’s scandalous behavioiur, don’t have it. But dividend-rich companies, like BP, do.

BP, of course, had it coming to it. Its behaviour in the Gulf of Mexico can be described as neither caring nor competent. That, however, is not the point. It is the ease with which Congress and Obama have been able to extract $20bn – none of which is ever likely to be returned to the company – that should be worrying shareholders everywhere. There is no fixed liability associated with this sum and – like blackmailers the world over – politicians will come back for more if they think they can get away with it.

To Gapper, the BP concession has echoes of the 1998 tobacco settlement, in which the industry paid $246bn to various states following legal action by their attorney generals. It’s worth quoting him more fully here: “Only 5% of tha money was spent on tobacco-related initiatives with Virginia, for example, investing in higher education, fibre optic cables and research into energy.”

Now let me see, which other big-dividend paying companies could land themselves in a pickle with the state over litigation liability? Gapper thinks the list is comprehensive and cites energy providers, drugs companies and consumer goods companies. I think two on his list stand out particularly prominently: the food and alcoholic drinks companies.

Imagine, for example, what might happen if scientific evidence conclusively proved that many of the big food companies had been slowly poisoning us to death through the use of (now largely discontinued) hydrogenated fats? Or what about excessive sugar and salt in cereals directly leading to premature cardio-vascular impairment? The legal fall-out, through class actions, could be stupendous. And lining up behind the lawyers would be the politicians waiting for a big, fat hand-out, or else. After all, it could be argued, a massive amount of taxpayers’ money has, historically, been funnelled into dealing with the collateral medical issues: time for industry to pay back the “subsidy”.

All the more could these arguments be applied to the side-effects of excessive alcohol consumption. The history of the tobacco industry suggests that free will and individual responsibility weigh little in the balance once these matters come to court.

And where the US leads, little Britain surely cannot be far behind.


Sorry Costa – are you better than Caffe Nero too?

June 16, 2010

Practical experience has long told us that Costa coffee tastes better than the Starbucks brew. So Costa, owned by Whitbread, must have felt on a pretty safe wicket when it came up with a knocking campaign to prove the point. Do its research properly, and it would romp home.

So it turned out. Costa launched a poster and print campaign, via Kamarama, which rejoiced in such wounding straplines as: “Sorry Starbucks: the people have voted”; “Starbucks drinkers prefer Costa” and “Seven out of ten coffee lovers prefer Costa”. And it was a winner. Costa’s sales, on a like-for-like basis, rose 5.5% during the period (though how much of this was share stolen from the unfortunate Starbucks I do not know).

Most wounding of all, no one complained about the unfairness of it all. Well, almost no one. A single complaint was lodged with the appropriate watchdog, the Advertising Standards Authority. Guess who lodged it? A comprehensive inquiry investigating everything from Costa’s methodology to the size of its small print followed. And the result? Triumphant vindication for Costa and superheated milk-froth in the face for Starbucks, all five of whose grounds for complaint were rejected. Game, set and match to Costa.

In such circumstances, it might seem churlish to rain on Costa’s parade, but I do have a niggle. Well, more an enquiry really. The ASA seems more than happy with the professionalism of the market research on which these sensational Costa claims were based, so who am I to complain? Just for the record, though, the blind-taste tests in question also involved a Caffe Nero cappuccino, which alternated with Starbucks’ equivalent brew as the foil to the Costa product. Yet we hear nothing of what our sample thought of Caffe Nero vis-à-vis Costa. Common sense suggests it performed rather better than the Starbucks product, which has unkindly been compared to a warm adult milkshake. But the ASA adjudication document does not make this entirely clear. Supposedly, the full research results are published on http://www.costa.co.uk. See if you can find them. I can’t.

On a footnote, taste isn’t everything. If it were, Pepsi would long since have overtaken Coca-Cola in the UK, according – so I am told – to periodic blind-taste tests.

UPDATE: You will search in vain for the research findings on the Costa website: they have been removed. However, a kindly PR has provided me with a copy of the results and I can report the following:

“Preference for Costa’s cappuccino is remarkably strong in comparison to competitors among those who identified themselves as “Coffee lovers”, With 7 out of 10 preferring Costa (with 72% preferring Costa versus 28% Starbucks; and 69% preferring Costa versus 31% Nero). Significantly, coffee drinkers who prefer Caffè Nero and Starbucks as their main outlets preferred Costa cappuccino over their preferred retailer’s product.”


Katie Price perfume causes a stink

June 15, 2010

Will this scandal of wage slavery in India – so diligently dug up by The Observer – ruin the brand equity of the glamour model also known as Jordan? I think not.

Katie Price was never very fragrant in the first place and – in fairness – never set out to be. Hard-boiled yes, arguably mercenary, but not a hypocrite. The perfumes in question – Stunning and Besotted – are the woman: overpowering, unsubtle but strangely memorable. There’s a vulgar, almost disarming, candour to her self-diagnosis of success: “Some people may be famous for creating a pencil sharpener. I’m famous for my tits.” No one could accuse her of trying to rescue the developing world from poverty; she’s just out to make money while she can.

The hypocrisy lies elsewhere. I wonder how many other celebrity essences are bottled and marketed in flasks produced for the equivalent of 26p an hour? They may not have had the benefit of media exposure yet, but you can bet that Superdrug will at this minute be doing some long overdue diligence on the branded wares of, for example, Sarah Jessica Parker, Britney Spears, and Maria Carey to verify they are as robustly ethical as the high street retailer would have us believe.

I understand that the Pragati Glass Company, which manufactures the offending Price perfume bottles, has closed down its operation in India and switched production to much more expensive premises in the UK and France. Why ever do that? Surely it should have taken a leaf out of Apple’s book. Confronted with irrefutable evidence that it was paying its Chinese workers a pittance and driving them to suicide, Foxconn –  main supplier of the iPad and iPhone – reformed its working practices and doubled employees’ wages. That must be a lot less harmful to Apple’s margins than repatriating production – and has the added merit of sustaining employment in a developing economy.


Drinks industry fails to get message on the bottle

June 15, 2010

Drinks industry lobbyist the Portman Group’s stance on labelling is looking distinctly muddled.

Back in February it emerged, to huge consternation among the bannist tendency, that only 15% of alcoholic drinks carried the labelling required by the current voluntary scheme. Not surprisingly, dire threats of legislative action issued from the then Labour government, and the Opposition upped its anti-industry rhetoric a register. Suitably chastened, the Portman Group promised action and earnestly set about collecting pledges from its members. Portman chief executive David Poley reckons that 81% (how curiously precise) of his members will now comply. But, here’s the odd bit. Stop dallying, he warns the new Government, or not very much is going to happen:

“There’s a danger that, if the government takes a long time in coming back and confirming its plans, then it will be difficult to achieve the 81% by the 2012 target,” he’s reported as saying. What, rightly or wrongly, can be inferred from this statement is that the drinks industry can’t be bothered to comply with its own code so long as the least threat of legislative intervention (a fairly low-grade threat by the way) hangs over it. Surely, such arrogant complacency is likely to provoke the very action the drinks industry most wishes to avert?

Then again, maybe it’s just me; maybe it’s the reporting; maybe we’re missing the wider context…


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