Keurig Dr Pepper (KDP) completed a U.S. PR review of its water, tea and juice portfolio this week after kicking off the RFP process on Oct. 3. Now the brand is facing scrutiny for stipulating that pitching agencies either agree to exceptional 360-day payment terms or obtain financing from a third-party bank.
KDP declined to share any information on the RFP process, aside from confirming to Adweek that the review concluded this week and that the brand has selected an agency partner. But the review’s outcome is less newsworthy than its payment terms, which prompted the trade organization VoxComm to issue a recent statement condemning this move by the company. VoxComm is an international trade organization that represents other trade organizations. Its members in the U.S. include the 4A’s and the PR Council.
PR Council member agencies who received the RFP voiced their concerns, which led to the PR Council bringing the matter to VoxComm’s attention. VoxComm required the PR Council to validate the claim by speaking with at least three member agencies. The RFP document, which Adweek obtained a copy of, notes the 360-day payment terms and states, “The capability of participants willing to enable KDP’s payment term strategy will be heavily factored in this RFP decision process.”
“All we’ve seen is this moving feast from 30 days outwards, and outwards and outwards, and you’ve got to consider—a brand has got to consider—‘What impact does that have on the innovation and growth and excellence coming out of my agencies?’” Scott Knox, director of VoxComm and president and CEO of the Institute of Canadian Agencies, told Adweek.
The brand’s demands stand out as objectively exceptional compared to the 60 to 120-day industry standard most adhere to. Some brands have elicited criticism for asking agencies for longer payment terms, and others, including Dentsu, have implemented 30-day payment terms for smaller, minority-owned publishers it works with, underscoring that payment terms are under consideration industry-wide.
Agencies that agree to such protracted payment terms face obstacles, such as needing to pay the salaries of employees that staff the account and paying their own partners on a reasonable schedule. These payment terms may also exclude smaller agencies that have less financial fluidity, which is why requiring an agency to wait a full year for pay is particularly egregious—at least according to VoxComm and pitch consultants Greg Paull and Tom Denford, who are familiar with industry standards.
“Payment terms have become a key foundation of every agency procurement discussion as an important lever to optimize use of funds. It’s a slippery slope since agencies need to pay their own staff and vendors on a shorter lead,” said Paull, the co-founder and principal at R3, in an email to Adweek.
Discussing payment terms
KDP brands include Keurig, Dr Pepper, Canada Dry, Snapple, Bai, Motts, Core, Green Mountain and The Original Donut Shop, 7up, Sunkist and Schweppes. The company is also behind at-home coffee products for other companies including Cinnabon, Krispy Kreme, McDonald’s and Newman’s Own Organics. All told, the brand either owns or is affiliated with over 125 brands. With this many brands, KDP’s agency roster is also broad. Its notable agency relationships include Havas, which manages media and some creative work for the brand, and Deutsch Los Angeles, its primary partner on creative work. Havas Media Group directed any request for comment to KDP. Deutsch LA confirmed its long and productive relationship with KDP but declined to comment on its payment terms.
One small KDP partner, which declined to be named in this story, expressed surprise at the payment terms and characterized its terms with KDP as fair. “I would be shocked if they’re all on one-year payment terms,” the source said of KDP’s PR agency partners. “I think that there’s a part of the story that’s missing. There’s probably something specific about this RFP and the hiring entity within KDP that perhaps couldn’t afford it, but I think it’s horribly misleading to suggest that that is a sort of a prejudiced or exclusionary tactic,” they said. KDP declined to explain whether there was a special circumstance for this RFP.
“What’s really important to understand is that we have long histories with multitude of agencies, from large multinational ones to small niche focus shops. And we always endeavor to arrive at solutions that meet the needs of both KDP and our agencies, and that includes any part of a contract, including payment terms. And that’s just one part of the discussion,” Vicki Draughn, vp of corporate communications and philanthropy at the brand, told Adweek.
Discussing payment terms with agencies is a normal part of the RFP process, Draughn said, although she declined to specify if those discussions resulted in KDP offering any participating agencies flexibility on the terms. KDP agencies that could not or would not agree to front payment themselves for the year had just one other option if they wanted to proceed with the pitch: they could finance payment through Atlanta-based PrimeRevenue, but would have to pay any associated fees and interest, which would eat into an agency’s margins.
“Procurement teams will be better served looking for added value and driving additional benefits such as strategic talent and initiatives. Agencies are not a bank—and no bank will lend money for 180 days or 360 days interest free,” Paull said.
Agencies can use money generated through a PrimeRevenue agreement at their own discretion, according to Draughn. For example, agencies could use those funds to pay employee salaries or to compensate vendors or freelancers they work with.
KDP offers this third-party financing to other partners and has for years. Underscoring how common it is for all of KDP’s partners—not just agencies—to draw money from a third-party bank, KDP paid a total of $2.8 billion during the first nine months of 2022 and $2.5 billion during the first nine months of 2021 to financial institutions that bought KDP’s debts, according to KDP’s most recent 10-Q report.
KDP’s payment terms range from 10 to 360 days, according to the 10-Q. Draughn declined to address why KDP asked PR agencies to agree to the longest possible payment term in this instance.
The implications
“If, as they should, the company expects excellence and innovation to drive the growth of their brands, starting a partnership in this way with any agency is counterintuitive,” said Marla Kaplowitz, president and CEO of the 4A’s. “4A’s is working with global industry body VoxComm to help guide the thinking for the best outcome for their brands and stakeholders.”
According to Tom Denford, CEO of pitch consultancy ID Comms, 360-day payment terms stand out and will lead to agency talent refusing to work on its “worst-paid account.” As a result, the account team may be understaffed and produce poor work for the brand. Within a year, the relationship risks becoming so toxic that the brand will have start its pitch process all over again.
“Here’s what happens by imposing 360-day payment terms in a pitch: Only the most desperate (or reckless) agencies compete in the pitch [and] the one that wins the ‘race to the bottom’ regrets it from day one,” Denford said. Notably, KDP’s agency RFP evaluation criteria included “Strength of talent/commitment to diversity.”
The review was set to conclude on Dec. 16, according to the timeline established in the RFP. Knox expressed surprise that it seemingly concluded early and criticized the brand for leaving squeezed agencies little recourse but to work with its third-party financer.
“Innovation and growth is not on the agenda, but cost-cutting and margin erosion [are],” he said. “Setting up a quarterly spreadsheet mentality is what Keurig Dr Pepper is now in the game of. If I was a shareholder, that’s important for me to understand.”
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