Jobs are being created, companies are expanding with new products and services to meet growing demand, and the outlook has never been better.
No, this is not the State of the Union, but instead the state of the nation's sales and marketing agencies that serve the retail and consumer products industries.
“We are very, very bullish on our industry and the future of our industry,” said John Saidnawey, president and chief operating officer at JOH, based in Billerica, Mass. “Outsourcing is definitely in. We've had three consecutive record-breaking years, and we don't believe there is an end in sight.”
His sentiments are matched by others in the industry, and backed by research in the last few years indicating that product suppliers can benefit by focusing on their core competencies and outsourcing some functions to the agencies.
At the same time, the agencies have been augmenting their arsenals with new capabilities — many gained through acquisition — and expanding their reach through alliances.
In the past year, for example, JOH and SellEthics have combined to form JOH-SellEthics LLC, formalizing a working relationship the companies already had established to cover the East Coast, and in another mega-alliance, eight regional agencies combined to form Beacon United and provide national reach to clients.
And among the national agencies, acquisitions have created new lines of business and strengthened their presence in alternative channels, among other benefits.
A report last month from Andrew Lazar, a New York-based consumer goods analyst at Barclays Capital, provided more fuel for the positive outlook on this segment of the industry.
“We believe that for some [CPG firms], broker-based selling may be an elegant solution for several reasons, and that the benefits involved are not merely financial but also strategic in nature,” he concluded. “Potential benefits include not only associated cost savings, in our view, but also enhanced sales flexibility, increased depth of coverage, increased service frequency, among others.”
While some manufacturers retain a purely direct-selling approach, keeping all of their sales and marketing functions in-house, “there clearly seems to be movement along the spectrum towards hybrid and agency models alike,” Lazar said.
In a hybrid model, a manufacturer might retain some product lines or accounts to service in-house, and delegate the lower-tier product lines or accounts to sales agencies, or they might retain some of the functions, such as headquarters selling, and delegate store services, category management or other functions to the agencies. In many cases, the sales agencies can handle some of these tasks more efficiently.
“Essentially, brokers can leverage scale across multiple products and categories, spending more time in-store while minimizing drive time,” Lazar explained.
The sales agencies themselves agreed.
“We are seeing encouraging trends in the outsourcing environment,” said Robert Hill, president and chief executive officer, Acosta Sales & Marketing, Jacksonville, Fla. “Folks who maybe traditionally had not outsourced at all, or have not outsourced a lot of services, tend to be outsourcing more.”
Acosta has increased its employment by about 20%, to about 20,000 workers in the last 12 months, he said, as the company has expanded its services with companies like Campbell Soup Co. and others.
Likewise, Joe Crafton, president and CEO of Crossmark, Plano, Texas, told SN that outsourced sales and marketing “is a good space to be in right now.”
“Although it's not counter-cyclical, it has some real pluses when people get into hard economic times,” he said. “It's been shown countless times that a combination of direct and outsourced sales forces is the most efficient route to market.
“We have relationships and proximity and expertise, and we are less expensive than the alternative, which is a direct sales force. We create economic value,” he said, citing a 2007 study from Grocery Manufacturers Association indicating that agencies provide $4.8 billion in value to the industry.
Crossmark has been seeing an increase in outsourcing by CPG firms, he noted.
“When suppliers do their customer segmentation, there are some customers that they consider to manage vertically themselves in-house, and others that they choose to outsource, and the list of those that they choose to outsource is growing,” he said.
Crafton cited a GMA and McKinsey study that suggested manufacturers keep a limited number (about 13) of strategic customers in-house and outsourcing the rest to sales agencies. “That's very positive,” he said.
Saidnawey of JOH said as his company sees some clients go to a direct sales model with the larger retailers, “we are being asked more and more to provide resources to support the direct team” in a “broker assist” or hybrid model.
“They might need everything from category management support, space management support, certainly store operations support, senior management support — headquarter relationships. We have certainly seen that pick up.
“The other area we would see picking up is the selling of products to alternate trade channels or nontraditional outlets, whether it's mass merchandisers or club stores. We are seeing more and more of that being outsourced as well.
“Those are all the types of areas that have really picked up for us.”
Sonny King, chairman and CEO, Advantage Sales & Marketing, Los Angeles said CPG companies are “looking for efficiencies.”
“It's a tough market out there, and all of them are under cost pressures, so they're looking for ways to go to market more efficiently and get at least some results.”
Hill of Acosta said his company has been investing more in training and education in the weak economy.
“The reality is that it's a tough operating environment,” he said. “The shopper is as conservative as they have ever been, they are preparing for their trips, they are spending less, they are belt-tightening, and robust organic growth is hard to come by, whether you are talking about the retailer or the CPG company.
“What we have tried to do during these times is invest in our people, through training and education, through Acosta University, or by hiring the right folks.”
Adding New Businesses
Acosta and others also have been able to grow through acquisitions and through the addition of new businesses, such as the expansion of product-sampling services by Crossmark and Advantage.
“Acquisitions have been very beneficial to us from a strategic perspective, and have enabled us to grow our clients' sales and offer new solutions,” Hill explained.
In 2008, for example, Acosta expanded into the military channel through the acquisition of a 50-year-old family business.
“The channel really lacked sufficient resources, technology and capabilities, because there were a lot of small agencies who didn't have the scale to make those kinds of investments,” Hill said.
“We have doubled our military business by bringing in new capabilities, new people and new resources, plus we have given our clients a solution in a channel where perhaps they did not have as robust solutions. The benefits of scale can allow us to provide better services.”
He said the military business is also a “very clean adjacency” with Acosta's other businesses.
“The client portfolio is very similar, and there's a high need for category management, shopper insight, and retail execution and selling solutions,” Hill said.
Acosta's acquisition strategy, he said, revolves around enhancing the services it provides or finding additional services it does not currently provide.
“As we look at our core platforms, I think there's an opportunity to do acquisitions that take us into channels where we have not been in the past,” Hill said. “I think you'll see us do some acquisitions in the marketing space in the coming months to better serve our clients.”
Saidnawey of JOH said he believes it is a “very fertile time right now” for acquisitions in the agency space.
“Retailers are demanding more and more value services, and there is significant expertise in the smaller broker/rep groups that are of extreme value to the retailers,” he explained. “But as consolidation continues, the demands put on these smaller reps — such as syndicated data, category management, space management systems — create more opportunities for acquisition.
“Some of these smaller brokers and rep groups add so much value, yet they can't take it to the next level, so I would say there are opportunities to merge, and continue to grow in those areas.”
JOH, for example, has made two recent acquisitions — a small bakery broker called Over The Top Bakery, and another small alternative-channel broker that has international reach — and is looking at other potential acquisition candidates.
Likewise, Crossmark has also grown through acquisitions that have strengthened its presence in alternate channels. The company made an acquisition in 2010 of a firm called TNT, in the convenience-store channel, which has been fully integrated since April of last year.
“It was perfect with us winning the Kraft snacks division for convenience and for grocery,” explained Crafton.
Crossmark also created a new company called MPG Drug after the acquisition of MPG, which was an independent company that specialized in headquarter selling at drug stores.
Retailer Services
Crossmark for several years has focused on expanding its services to retailers by providing resets and remodels and other services around that function. It created its ProSet offering to help fulfill that mission.
“A number of sets out there were designed with the retailer's and the supplier's best interest in mind, and some of them look like they were designed in a vacuum,” Crafton said. “So we set about re-engineering that process so we could help retailers manage the massive number of category resets and remodels that occur during the course of the year — planning the work, organizing the work, scheduling the work, executing the work and then rolling that back in a report to give them visibility.”
Crossmark now has customized programs at Walgreens, Rite Aid, Duane Reade and also a number of grocers.
“In this whole process of resetting categories and resetting stores, since retailers are using supplier resources, it's not quite as organized and carefully calculated and mutually beneficial as it should be, so we come in and help them with that,” Crafton said.
Crossmark also has a retail services partnership with rival agency Advantage. The two formed a joint venture in 2009 to provide product demonstrations at Wal-Mart locations, and have since expanded into product demonstrations at Sam's Club.
Through Crossmark's own Crossmark Events, the company also recently began providing sampling at Spartan Stores and has tested the service at other retailers.
“We are now one of the largest in-store event companies in the U.S., and we will execute over 6 million hours of demos this year,” Crafton said. “Each of those is hundreds of interactions of consumers when they are in the buying mode — when they are in the path to purchase. We are the last commercial they see. Everyone wants to be first, we want to be the last commercial they see before they go to the cash register.”
Crossmark has also formed a joint venture with FLW Outdoors, a division of Jacobs Management Group, which runs fishing tournaments, and lifestyle and branding experiences in partnership with Wal-Mart and many consumer goods companies. The new venture, called Out Front Marketing, sets up trucks and trailers outside Wal-Mart stores around the country to promote products.
These “mobile brand boxes” are heavily branded, “so it's compelling to the consumer and draws them over to experience the product,” Crafton explained.
Crafton said Crossmark currently has two supplier clients for Out Front Marketing — Sony PlayStation and Straight Talk cellular service — and has other supplier clients, including some grocery companies, lined up to launch at Wal-Mart this fall.
“Wal-Mart has gotten behind the program and supported it,” Crafton said, noting that the program was co-developed with Wal-Mart's marketing and merchandising team.
Out Front Marketing currently has two trucks that travel from store to store, and would like to ramp up to 100, he said.
Crossmark also recently made a change to the way it provides coverage in Wal-Mart's stores.
“Recognizing that the bulk of the business is done on the weekends, working Monday through Friday was not optimal,” Crafton explained. “So we shifted our coverage to cover the weekends.
“The reaction from the supplier community has been fantastic. And Wal-Mart felt like it was a huge step in the right direction, because we are helping [reduce] their out-of-stocks.”
Like Crossmark, Advantage has expanded its in-store demonstration services to other retailers. It has been doing in-store demos for Supervalu for the past 18 months.
“Historically, sales agencies didn't participate in the demo business, but we've upgraded the program from what the demo companies do by offering more than just a table with a few items stacked on the floor,” said King of Advantage. “We use professional people in uniforms who are trained in cooking and sanitation, and we display product on beautiful racks that hold a lot of merchandise.”
The people doing the demos are the same from week to week within a given store, whereas demo companies have traditionally used different people who are in regular street clothes rather than a uniform, King pointed out.
After working with Wal-Mart and Sam's, Advantage expanded its demo program to Supervalu's banner chains, doing demos 52 weeks a year in roughly 80% of the stores.
The themes differ at each chain. At Wal-Mart the demo theme is “Bright Ideas,” and at Sam's it's “Taste and Tips,” but the programs are almost identical, King said.
At Supervalu the theme is “Good Things in Store.” For Supervalu, Advantage expanded the program to encompass more racks per store. Demos run every Thursday through Sunday 52 weeks a year. Most are national programs, though a vendor may demo some products on a regional basis, King said.
Advantage has added an element most traditional demo companies do not have, King said. “We hand out a 3-by-5 card with attributes of the products — such as its health aspects — that have been developed by our own marketing department in conjunction with the manufacturer.”
One of the most important things in retail today is the in-store experience, King said, “and the retailers we work with believe our demos improve the in-store experience for the consumer because our people come across better.
“The other plus for retailers is, our demos sell more product. At Wal-Mart and Sam's we've [doubled] the lift on demos up to 20 times regular movement.
“The norm is a lift of between 5 and 10 times normal movement while the demo is in place, and after that it tapers off, though the lift continues for several weeks.”
The program has been equally successful at Supervalu, King added.
King said Advantage expects to add another national retailer for its demo services “before the year is out,” though he declined to name it.
Rather than acquiring its expertise in in-store demonstrations, Advantage started the demo program from scratch, King said.
The demo business has been more lucrative than Advantage anticipated, King said. “When we got into it, we believed in-store demos were a $400 million- to $500 million-a-year business within the food class of trade. But it turns out it's a multi-billion-dollar business that goes beyond food, and we've now expanded it to encompass consumer electronics at Best Buy and middle-market restaurants.
“It's a huge business, and supermarkets are just one part of it.”
Business Innovation
Advantage initiated a business innovation group earlier this year — what King termed “a think tank” to enable the agency to come up with new items and new creative ways to come to market.
For example, King said ASM is testing several health and wellness initiatives — an area King described as “ground-breaking” for Advantage.
ASM is in the process of opening a health care division to service key opportunity gaps within the health care sector. “Products and services offered will be limited to one aspect of the health care sector but will build upon ASM's foundation and success in the CPG industry,” he said.
“ASM currently has several test initiatives in execution that range from in-store health fairs within the club channel to wellness consultancy in the drug channel to experiential events supporting health-plan providers.
“The health care sector is a huge space, and it continues to grow exponentially each day. ASM will ultimately take a lead position in this space, providing a full range of services.”
Among its early efforts in this category were a series of health and wellness events last June at Sam's Clubs, in which ASM worked with the company to support its existing monthly health screenings. The program leveraged a host of tactics — from traditional print and radio to the advent of a wellness advisor positioned at the front of the club to greet members and direct them to the screening area.
In the past the screening environments from club to club had been inconsistent, with a lack of branding in the screening area, King pointed out. However, at the events last June, in-club execution was in excess of 97% over two weekends, King said; and the events drove a record-high average of 75 screenings per club, compared with the previous average of 55, with some clubs reporting out-of-stocks on screening kits in less than 38 minutes.
An event scheduled at Sam's for Sept. 1 will focus on diabetes, King said.
Additional reporting by Elliot Zwiebach
Agency Expansion
SALES AND MARKETING AGENCIES are experiencing a boom for several reasons, including:
- • Increased outsourcing by CPG companies that seek to focus on core competencies.
- • Support functions such as category management in hybrid relationships with suppliers.
- • Acquisitions of smaller specialized brokers that add key relationships or retail channels.
- • Providing additional retail services such as demos and resets.
- • Expansion into alternative channels such as drug and convenience stores.
