P&G FINDS COUPONING A WASTE, SAYS ITS PRESIDENT

DAVID ORGEL

ORLANDO, Fla. -- Procter & Gamble has no place for the wasteful and inefficient practice of couponing, Durk Jager, president and chief operating officer, said in a presentation here last week.

Jager, whose company is involved in a high-profile coupon elimination test in upstate New York, heated up the rhetoric against couponing as P&G drives to reshape its strategies using other marketing tools.

He spoke on a panel with wholesalers and other executives at the Annual Business Conference and Partners Program of the Falls Church,

Va.-based National-American Wholesale Grocers' Association, whose parent organization has been renamed Food Distributors International. (See story on Page 4.)

Panel members addressed the topic of "Driving Change" through issues ranging from Efficient Consumer Response to meal solutions. Other participants were Paul Raether, general partner in Kohlberg Kravis Roberts & Co.; Michael Wright, chairman, president and chief executive officer of Supervalu, and Patrick Quinn, president and chief executive officer of Spartan Stores. In his presentation, Jager stressed the unproductive nature of couponing.

"More than 300 billion coupons are issued annually and less than 2% are being redeemed," he said. "Some 8 million trees are cut down for coupons annually. About 40% of total coupon spending never reaches the consumer. We decided coupons have to go."

P&G's zero coupon experiment, being conducted in Buffalo, Rochester and Syracuse, N.Y., involves all company brands and categories and is one of the most closely watched marketing tests of the year. Jager said coupons don't fall into P&G's vision for the company, which he called "transparency." That strategy involves creating the easiest choices for consumers without distractions. It includes focusing on breakthrough items rather than "me too" products, articulating the benefits of P&G products vs. those of competitors so price isn't the primary purchasing motivator, and pricing fairly and consistently for performance.

"There's nothing transparent about coupons, a practice that fails 98.3% of the time," Jager said.

Jager added that Cincinnati-based P&G recognized as far back as the late 1980s that couponing was one of the practices -- along with refund offers and too much variety -- that was hurting the company's business. He said the company continues to search for new ways to remove itself from a selling mentality and further embrace a marketing stance.

Providing a wholesaler's point of view on P&G's coupon test, Spartan's Quinn said communication between the Grand Rapids, Mich.-based wholesaler and its trading partners will be vital.

"P&G decides to get out of coupons and that's OK," he began. "But let's have full disclosure and learn how they will go to market. How can we utilize it? We want it all on the table and then it doesn't matter."

Quinn's discussion of industry change focused on the subject of ECR, stressing that many of the benefits from that initiative remain elusive.

"Despite all the focus, meaningful progress is going at a snail's pace," he said. Quinn noted that wholesalers have proven wrong the original conventional wisdom about ECR by leading manufacturers through the process rather than the reverse.

"A significant wholesale distribution segment is initiating and prodding change and so many manufacturers are responding so slowly. Why is the change moving so slowly?"

However, Quinn said, most recently he's been encouraged by the progress of many manufacturers.

Another executive addressing the subject of change was Raether of KKR, based in New York, who spoke about organizational change. KKR holds

stakes in firms including Fred Meyer Inc., Safeway, Stop & Shop and Bruno's.

He stressed that KKR believes in creating "a sense of urgency for change" and allowing room for growth. "We don't starve leveraged buyouts for capital; we believe in reinvesting in the business," he said.

Supervalu's Wright recounted the Minneapolis-based wholesaler's road to restructuring over the past five to six years, from early planning meetings through the implementation phases of today. Wright said the early doubts both inside and outside the company are being reversed.

"The grasping of the change is phenomenal," he said. "Forty-five thousand Supervalu employees understand what's happening."