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Whistle-Blower: P&G Calls the Cops As It Strives to Expand Sales in Latin America --- Noted Marketer Tries to Sell Antitrust Notions in Bid To Catch Its Giant Rivals --- Sending In Legal Precedents
By Tara Parker-Pope and Jonathan Friedland
Staff Reporters of The Wall Street Journal

03/20/1998
The Wall Street Journal
A1
(Copyright (c) 1998, Dow Jones & Company, Inc.)

BUENOS AIRES -- Last year, television viewers here saw an extraordinary commercial. It had close-ups of rear ends and toilet seats. "Ariel, Ariel, Ariel," an announcer chanted.

Procter & Gamble Co. was mortified. For more than a year, it had been preparing to launch its Ariel laundry detergent in Argentina. Suddenly, an ad was telling all Buenos Aires that "`Ariel' is synonymous with toilet seats."

The spots were advertising an obscure toilet-seat maker, Ariel del Plata SA, which, P&G learned, has ties to its big rival, Unilever Group. Locked in a global brawl with the Anglo/Dutch conglomerate, P&G is convinced that the ad campaign was a calculated smear. But P&G's response was out-of-character: The mighty multinational complained to regulators.

In fact, P&G is becoming the biggest corporate whistle-blower south of the border. A latecomer to Latin America, the consumer-goods giant is scrawny in the region and is using a blossoming antitrust climate to help it catch up by filing lawsuits and snitching to antitrust cops. Although businesses around the world routinely seek to gain advantage over competitors by appealing to regulators, the scope and intensity of P&G's efforts to use Latin America's regulatory system to improve its competitive status are extraordinary.

The maker of Tide, Crest and Pampers employs more than two dozen lawyers in Latin America, with fully one-third of their time devoted to exposing practices it considers prejudicial. It has systematically collected regulatory rulings from mature markets in the U.S. and Europe and turned them over as suggested precedents to guide Latin American regulators trying to interpret newly enacted antitrust laws. It also has funneled reams of data to trustbusters to show how competitors' practices might harm consumers. It is "very, very insistent," says Manuel Sandoval, an official of Mexico's Federal Commission on Competition. "Even their chairman of the board came to visit us."

Some early results: In Brazil, P&G helped make less valuable Colgate-Palmolive Co.'s $1 billion acquisition of Kolynos do Brasil Ltda., a toothpaste maker. And in Mexico, it helped derail a tissue-paper near-monopoly created when Kimberly-Clark Corp. and Scott Paper Co. merged.

"It's been an ongoing effort on our part to try to get to a level playing field," says Jorge P. Montoya, P&G's point man in Latin America.

Competitors say P&G simply can't adapt to fluid and unfamiliar markets and instead is relying on regulators to shore up its business. P&G "is trying to keep false arguments before the public in an attempt to justify its lack of commercial success," says Miguel Gonzalez Abella, Unilever's corporate-affairs manager in Argentina. Unilever calls charges of a dirty-tricks campaign "slanderous."

What P&G really needs to penetrate the region is creative marketing, adds Eduardo Orteu, president of a major Argentine retailer, Supermercados Disco SA. "The regulatory system isn't a solution to Procter's problems," he says.

P&G certainly isn't the household name in Latin America that it is in the U.S., Europe and Japan. At a time when economic-stabilization policies have snuffed out inflation and triggered a spending spree by consumers, Latin America accounts for only 6% of P&G's $35 billion in global sales. Colgate, by contrast, generates 26% of its revenue in the region. In terms of market share, P&G lags behind Unilever, Colgate and Kimberly-Clark.

For consumer-goods makers, no emerging market is more important than Latin America. With Asia in an economic crisis, Latin America is the world's fastest-growing region, with gross domestic product expected to grow nearly 4% this year.

For years, however, P&G steered clear of Latin America and its economic and political volatility, even as Colgate and Unilever bought up big local brands and, overnight, acquired market share. Until 1987, P&G ran its Latin American business from its corporate headquarters in Cincinnati and sold only detergents and a few cleaning products in the region.

Then, things began to change. Mr. Montoya, who in 1985 had taken charge of the Latin American business at age 39, moved the regional headquarters to Caracas in 1987. The Peruvian native bought local Latin American brands and started new ones in a decade-long push that expanded sales by 20% a year. The buying binge included a detergent maker in Colombia, two cleaning-products companies in Argentina and a disposable-diaper maker in Venezuela. By 1994, P&G's Latin American sales had grown 400% to $2.25 billion.

In the mid-1990s, the Latin American marketplace began changing, too. Wary of the growing power of big business in the wake of market-liberalization programs, legislators began rewriting antitrust and fair-competition laws.

Their original target was public utilities, which had been privatized earlier in the decade. But the upshot was to make private companies, particularly large ones, more accountable for decisions significantly affecting consumers. In Argentina, for example, a plan to make long-distance calls cheaper while raising local phone rates stirred up howls of protest, and it has been stymied by lawsuits filed by consumer groups and politicians.

"The balance of power is shifting," says Congresswoman Graciella Fernandez Meijide, a popular opposition politician in Argentina. "And the business community had better get used to it."

At least six Latin American countries have begun revising legislation governing their versions of the U.S. Federal Trade Commission. One high-profile agency is Conselho Administrativo da Defesa Economica, Brazil's antimonopoly commission. Newly armed in mid-1994 with sweeping powers to investigate anticompetitive practices, the CADE in December 1994 vetoed the sale of an auto-parts maker and a cement-company merger, holding that both deals would create monopolies.

Just one month later, P&G had its own crisis in Brazil. Colgate, which had about 27% of the toothpaste market there, offered $1 billion to acquire Kolynos, which had about 52%, from American Home Products Corp. P&G also had been bidding for Kolynos, but Colgate offered about 40% more money than any other bid and ended P&G's chances of quickly establishing itself in Brazil's toothpaste market.

After a phone call from Cincinnati alerted P&G executives in Latin America that the company had lost out on the bidding, Mr. Montoya shifted to Plan B: Foil Colgate by persuading the CADE to halt the acquisition. P&G executives around the world began compiling information on similar cases. Colleagues in Europe sent Brazil precedent upon precedent, rulings about mergers stymied by European regulators. In Mexico, they assembled detailed market histories to show how consumers had been damaged by the dominance of companies such as Colgate.

P&G argued that Colgate has delayed launching new products unless pressured by a robust competitor. For example, it told regulators that Colgate's Maximum Fluoride Protection toothpaste, launched in the U.S. in 1969, wasn't brought to Mexico for 17 years. And years after Colgate had introduced flexible toothpaste tubes, Mexican consumers were still using harder-to-use aluminum ones.

"If they didn't do it in Mexico, they wouldn't do it here," says Yolanda Leite, P&G's legal and public-affairs counsel in Brazil. "We were saying, in the end, the consumer benefits from competition."

Colgate says it targets "the needs of different socioeconomic groups with a range of products offering different benefits at different prices." It adds that it now has "fluoride in all its toothpastes" and that it still offers some aluminum tubes "to help keep prices affordable."

After a nearly two-year review, the CADE in September 1996 made Colgate pull the Kolynos brand off the market for four years. P&G had hoped the commission would also force Colgate to sell off a piece of its oral-care empire; P&G would have been all set to buy it. Although Colgate was allowed to launch a new brand, Sorriso, Colgate's share of the Brazilian toothpaste market isn't the 79% that the merger might have given it, but 73%, according to AC Nielsen Corp. P&G has doubled its market share in Brazil but still holds only 0.4%.

Seven months after Colgate's initial bid for Kolynos, P&G faced similar trouble in Mexico, where the Scott merger would give Kimberly-Clark control of about 90% of the country's tissue business.

So, in early 1996, P&G cranked up its market-research machine and began sending streams of data about the Mexican tissue business to regulators. P&G wasn't shy about pointing out that regulatory agencies in the U.S. and Europe had already ruled on the merger, requiring, among other things, that Kimberly sell off its world-wide baby-wipes operations. P&G Chairman John Pepper flew down to Mexico City, made P&G's case before Mexico's competition commission and followed up with frequent phone calls.

The strategy worked. In March 1996, Mexican regulators ruled that Kimberly-Clark would have to sell the popular Regio brand of tissue, which had about 20% of the market -- and the merger went through. P&G then bought another tissue maker, Loreto y Pena Pobre SA, for $170 million. It became the No. 2 player, with about a 20% share of Mexico's tissue market, behind Kimberly-Clark's 55%.

P&G has also worked to overturn protectionist laws. In early 1996, it faced a $40 million judgment in Ecuador when a distributor of its Vicks products sued it for canceling its contract. Viewing the law cited in the suit as unfair, P&G lobbied Ecuador's congress relentlessly, and that March Mr. Pepper wrote a personal plea to President Fabian Alarcon. Three months later, the congress changed the law. But the issue remains alive, as Ecuadorian courts continue to enforce the old law. So, Mr. Montoya recently flew to New York to appeal again to President Alarcon, who was attending a meeting there.

Today, P&G is staging its biggest antitrust push in Argentina. Last October, following the toilet-seat commercial, P&G lawyers met with the National Commission for the Defense of Competition, an antitrust agency whose powers are being bolstered by the legislature. Among other things, the commission has doubled the size of its investigative staff to 35.

P&G, which trails Unilever in the Argentine detergent market, 11% to 72%, laid out numerous grievances. In mid-1995, P&G was planning to launch Ariel, the overseas version of its Tide laundry detergent, and developed an ad campaign that was to feature a well-known talk-show host, Maria Laura Santillan, and testimonials on Ariel's cleaning power from washing-machine maker Whirlpool Corp. and INTI, an Argentine research group. P&G contacted all the participants, but then decided to put the campaign on hold.

Enrique Banuchi, P&G's legal counsel in Argentina, says he was amazed a year later, when Unilever began airing an ad for its Skip laundry soap, with Ms. Santillan starring as a reporter and Whirlpool and INTI as endorsers -- just as P&G had planned for its own ads. Mr. Banuchi fired off a letter asking Unilever to withdraw the commercial. "We couldn't believe it," he says. "It was so similar to ours." Unilever says the idea was its own and has been used in other campaigns.

P&G also told the commission that Unilever had paid wholesalers to stop carrying P&G's Duplex detergent. Mr. Banuchi says Unilever offered wholesalers generous payments that often exceeded the wholesalers' total sales of Duplex. Unilever says, "None of our actions impeded the free choice of the consumer."

Then P&G complained about the Ariel del Plata ads. The toilet-seat maker's logo, previously a black deer, now resembled P&G's own Ariel detergent logo, with red letters on a green background. P&G lawyers learned that Ariel del Plata, with annual sales of just $6 million, had been used by Unilever as an endorser of its CIF cleanser. Also, the disputed commercial was prepared by Ammiratis Puris Lintas, the same ad agency that crafted the Skip campaign, and one of Unilever's main global agencies. Neither Unilever nor Ariel del Plata responded to faxed questions, and Alberto Betancort, president of Interpublic Group's Lintas unit in Argentina, declines to be interviewed.

P&G did some soul-searching before taking its allegations to the antitrust agency. Protesting a merger is one thing, but accusing a competitor of unfair trade practices is a weightier matter. P&G says it contacted Unilever managers in Argentina, Caracas and even Britain to reach some kind of agreement, but to no avail.

At that point, P&G's general manager in Argentina, Carlos Paz Soldan, and Mr. Montoya telephoned Cincinnati and planned strategy with its president and chief operating officer, Durk I. Jager. The decision: Call in the trustbusters.

Shortly after P&G filed its case, the commission raided the offices of Lintas, Ariel del Plata and Unilever and hauled away boxes of documents. It is expected to complete its investigation within a few months. If it finds Unilever at fault, the case will go to Argentina's courts.

Mr. Montoya says P&G decided to wage the regulatory battle because it wants a chance to compete fairly, but he won't predict whether the strategy ultimately will help increase sales in the region. "It's the consumer who has to decide whether our products or our competitors' products are better," he says. "We know we are doing the right thing."