The Boots Company’s decision to consolidate its entire &£80m marketing communications business into WPP Group marks the first time a company has bought into a holding company for all of its marketing requirements.
The landmark deal – said to have been struck by WPP chief executive Martin Sorrell and Boots chief executive Steve Russell – could point the way for many agency/client relationships in future.
While most in the industry can only admire what Sorrell has pulled off, there are serious questions about a deal of this proportion, and its implications for the Boots brand.
WPP this week announced a 26 per cent year on year rise in third-quarter revenues to &£679.4m.
Boots will be able to pick the brains of WPP’s companies on every aspect of its marketing. This includes research companies Millward Brown and Research International, as well as the group’s advertising and PR agency networks.
Those agencies which stand to lose from the deal include OMD, whose &£50m Boots media buying business will move into WPP’s MindShare; Grey, which will be stripped of its &£6.5m UK opticians business – J Walter Thompson is to run the entire ad account; and St Luke’s, which is thought to be losing its &£7.5m beauty business.
“How strategically significant this is will only become clear in time,” says Leo Burnett managing director Stephen Whyte. Burnett is part of the BCom3 holding company, a rival to WPP. “It is easy to claim that Boots will gain the immediate benefits of integration but, across a group as large and diverse as WPP, delivering those benefits will be far from easy,” he says.
Under the terms of the deal Millward Brown, which specialises in tracking advertising effectiveness, could now be assessing Boots advertising which has been carried out by a sister company such as JWT.
According to insiders, Sorrell is not the only one to be able to claim credit for the deal. Dominic Proctor, chief operating officer of MindShare Worldwide, was heavily involved in the negotiations and spent months courting his new client.
Proctor was at JWT when the agency first picked up the Boots business six years ago and by all accounts, he and Russell are good friends. Stephen Carter, JWT’s outgoing chief executive, enjoys a similar relationship, although it is not known whether Carter was involved in the deal in the light of his approaching departure to NTL (MW September 7).
Whatever the precise nature of the relationship, WPP insiders emphatically deny the deal was done by two chiefs “getting into bed”.
Russell, an ex-marketing director, is said to have good relationships with all Boots’ key marketing directors, and insiders say they would be surprised if he had cut any of them out of the deal with WPP.
Boots says it decided on integration because it wanted consistency across all its communications. However, WPP is not noted for close integration between its companies, and will have to prove that it can manage strategic brand integration. The group has already appointed David McLaren, the chairman of Hill & Knowlton – a WPP-owned PR group – to act as the co-ordinator.
Cost cutting is also likely to have been high on Boots’ agenda. Since Wal-Mart’s arrival in Europe, companies such as Boots have been in fear of their lives, and so costs were a likely factor in all negotiations between the two companies.
Boots head of corporate marketing Neville Wells says: “This was not necessarily the cheapest option. But there is a benefit to consolidating costs. What we now get is the collective attention of one of the largest groups of companies in the world. These companies will now talk to each other and they will have a much clearer way of communicating what our brand message is.”
Wells adds that the deal was negotiated by Boots’ procurement department. But insiders say that Julian Coles, Boots’ head of procurement (who recently did a testimonial for OMD’s AAR reel in which he praised the agency), knew nothing of the deal because it was done over several lunches between Sorrell and Russell.
Wells denies this. “There have been several days when I have not been able to get hold of Julian because he has been closeted with WPP, so there is no way he did not know anything about the deal,” he says.
Coles may have taken care of the financial engineering, but it was Russell who was quoted on the press release announcing the deal.
Wells says Russell made the announcement because it was such an important one for the Boots brand. It is highly unusual for a chief executive to be so explicitly involved.
If deals are being done at such exalted levels, and marketing directors are having agencies pressed upon them, then the future power of marketing directors is in question. If more deals are made in this way, there will be many disgruntled marketing chiefs whose role will be to manage relationships with agencies they have had no part in hiring.
Rupert Howell, chief executive of HHCL & Partners and president of ad agency trade body the Institute of Practitioners in Advertising, says this situation is already a reality.
“What is the difference between this deal and DDB losing the Compaq business worldwide? Do you suppose the marketer over here had any say? No. He was given orders from the US.”
It may also change the way agencies go about getting new business. As one new business director says: “We might as well all give up and go home now.”
For advertising agencies and their marketing director clients who have shrugged off the Boots-WPP deal as a one-off that is unlikely to be repeated, Howell’s point of view presents a sobering contrast.
He believes all-in deals such as the WPP-Boots one are set to become more commonplace as consolidation among large, global companies becomes prevalent.
“Consolidation among multinational companies restricts client choice and clients are likely to take the attitude ‘well, why shouldn’t we have the best talent across the group?’,” he says
But Zenith Media chief executive John Perriss does not believe Boots and WPP have started a trend: “There will always be the exception, but in my experience clients will almost certainly continue to go through rigorous, competitive tendering processes,” he says.
Since Howell took over at the IPA, he has championed the cause for more marketing directors to sit on the boards of companies. Howell is a firm believer that in cases such as Boots, where decisions are being made that will affect the brand, it is important for marketers to have their say.
“Boots is not stupid,” says Howell. “There has got to have been an understanding of the quality of WPP’s offering. One of the consequences of these decisions at board level is that marketing directors’ positions should be elevated.”
Howell also maintains there is nothing wrong with chief executives playing a role in an ad agency’s appointment. He points to Sainsbury’s, which recently moved its &£25m television business back into Abbott Mead Vickers.BDDO from M&C Saatchi. “It’s no secret that it was Peter Davis’ decision [Davis is Sainsbury’s chief executive]. He has always rated AMV very highly and trusts the agency,” says Howell.
Another example is BA, which is not expected to sever its ties with M&C Saatchi while BC chairman Colin Marshall is still in charge. BA’s split from M&C is one of the industry’s most enduring rumours but, after years of working together, Maurice Saatchi is famously close to Marshall, making a serious review unlikely.
Sorrell will most likely have just a year to prove his company can provide what Boots needs. If WPP can produce strong evidence that Boots has pulled off “strategic brand integration”, it is likely that other companies will start looking at following the Boots’ path – particularly in the retail and motoring sectors, where price wars are endemic.
In fact, the Boots deal is similar to what Sorrell has nearly – but not quite – achieved with the Ford Motor Company.
Following WPP’s acquisition of Young & Rubicam, the company now owns all the ad agencies that handle the car company’s main business.
Ford has not, as yet, agreed to such a relationship with WPP, but if Boots’ agreement goes well it will champion Sorrell’s case for a similar deal, both with the car company and other WPP clients.
But Sorrell may still have a way to go in convincing Ford of the benefits of such a relationship. Ford is seeking an advertising agency for its newly acquired luxury marque Land Rover. As well as WPP’s three mainstream advertising agencies, Y&R, JWT and Ogilvy & Mather, Ford has invited two non-WPP agencies to pitch: HHCL and Wieden & Kennedy. HHCL is tipped for the &£19m business. HHCL is part of Chime Communications which is 29.9 per cent WPP-owned, but it will still mean a non-WPP agency has a toehold on Ford’s advertising.
The history of this landmark deal with Boots may be steeped in rumours, and the truth about Sorrell’s involvement has yet to come to light. But there is no doubt that this will be a benchmark for future developments.
OMD may still be reeling from the shock of losing one of its biggest clients, without prior warning or the chance to pitch. As UK managing director Paul Taylor said last week: “We are stunned. There was no precedent, no warning, no pitch and no invitation.”
If Howell is to be believed, and Sorrell and his rivals manage to pull off similar deals, then OMD may be able to take some comfort from the fact that other agency heads will wake up to face similar stunning news in years to come.