Anheuser-Busch’s offices in New York.
Brian Feldman’s piece about how consolidation killed St. Louis got a lot of attention when it came out last year. He argues that a rollback of anti-trust regulations that allowed industrial consolidation was the silent killer of what were once key regional business capitals like St. Louis.
Interestingly, his focus was on something you may not know ever existed in St. Louis, major advertising agencies.
If there is a living embodiment of the St. Louis advertising industry, it’s Charles Claggett Jr. The former creative director at D’Arcy, long one of the city’s largest agencies, he retired in 2000, two years before the French firm Publicis acquired the agency. One of his many claims to fame is that in 1979, he and his team penned “This Bud’s for You”—the slogan widely credited for helping St. Louis-based brewing staple Anheuser-Busch eclipse Miller during the 1980s beer wars….Another claim to Claggett’s fame is his father, Charles Claggett Sr., who led the city’s oldest and largest agency, Gardner, in the late 1950s and the 1960s. During his tenure, the elder Claggett oversaw accounts such as John Deere, Ralston Purina, and Jack Daniel’s.
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And it wasn’t just Gardner and D’Arcy—whose twelve offices now fanned out across North America, as far as Havana—that flourished in mid-century St. Louis. With its ample supply of locally owned businesses as potential clients, the city supported a vibrant start-up ad agency scene. These new firms trained up-and-coming talent, developed cutting-edge campaigns, and often grew to become regional or national in scope, enriching the metro area by bringing in revenue from outside of it.
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By the 1960s, St. Louis’s advertising industry had effectively developed into what economists call an “industry cluster.” Though the city’s agencies competed with each other, their sheer number created citywide competitive advantages: a deep bench of talent that moved in and out of agencies, spreading ideas and transferring know-how; a network of experienced, low-cost suppliers (printers, recording studios); and a reputation for quality that attracted national and international clients. All of it was built on the foundation of locally owned companies. These firms provided a steady supply of commissions facilitated by personal connections: account executives at the agencies and the senior executives at the corporations knew each other—from charitable events, from rounds of golf, or from attending the same high school.
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D’Arcy followed a similar trajectory. In 1985, it merged with NYC-based Benton & Bowles to become DMB&B, a deal that saw the headquarters and executive decision-making shift to New York. The St. Louis office still handled long-standing accounts like Mars/M&M and Anheuser-Busch, but NYC now made “above-the-rim” decisions. As Claggett put it, “The agency slowly became just a branch office competing for accounts.”
The turning point came one day in 1994, when, unbeknown to the St. Louis office, the agency’s NYC-based media-buying unit signed a $25 million deal with Anheuser-Busch’s archrival, Miller, then lied about it. Anheuser-Busch’s volatile owner, August Busch III, immediately cut ties with D’Arcy, costing the agency $422 million in billings. One D’Arcy copywriter quipped, “When you lose Bud, you’ve lost it all.” Two years later, the office lost its $140 million Blockbuster account to New York. The agency closed its St. Louis doors in 2002.
In the years since the St. Louis advertising cluster disintegrated, the entire industry has taken a major hit as the Internet has disrupted its traditional business model. U.S. ad agencies today have fewer employees than they did in 2000.
One of the companies that got bought out in St. Louis was Anheuser-Busch itself, a company so synonymous with the city that its name might as well be “Anheuser-Busch, St. Louis, Missouri.” The buyer was Belgium-based InBev, which was controlled (and still is I believe) by a group of Brazilian investors. Three years after the 2008 deal, the St. Louis Post-Dispatch looked back at the consequences for the company and the city.
They still make big decisions here, the kind of big-spending, imaginative deals that made this place so envied. But now executives in New York City sometimes sign off on them, too….Three years out, some things are clear. A-B is a diminished but still huge, powerful presence. The worst of the cost-cutting appears over. The brewery and some executive functions have remained in St. Louis. But the corporate culture of the old A-B — tradition-bound, perfectionist, focused more on dominating the beer market than making money — has given way to an aggressive austerity.
The extensive cost-cutting has squeezed more profits out of A-B, but questions remain over whether the company’s new bosses can grow brands and sell more beer. And St. Louis is no longer the center of the company universe. A-B is now the U.S. subsidiary of A-B InBev. With that, old assumptions — and wistful illusions — about the relationship between the company and the city have changed, too.
This is pretty well known, I believe. What’s less known, perhaps outside of St. Louis, is that in 2014 Anheuser-Busch announced it would be moving brand management and other functions from St. Louis to New York City, opening what it termed its “commercial strategy office.”
Today the A-B commercial strategy office employs about 400 people in a very cool modern office in Chelsea. While the firm is still technically based in St. Louis and employs a lot of people there, including a lot of management people such its supply chain leadership, this represents a significant loss of high talent positions for that city.
Why did A-B open an NYC? Well, InBev was already there. Chicago, the most logical place for a consumer business like A-B, had already landed the Miller-Coors HQ. I don’t have any insights on that, but would speculate it played a role in the choice of New York.
But what’s most troubling for St. Louis and many other similar cities is that A-B’s main reason for staffing up in New York was to be closer to its ad agency partners. In other words, we are seeing knock on effects from previous consolidations and the rise of global cities as key financial and producer services nodes.
First consolidation wiped out St. Louis’ national scale ad agencies. Then the loss of those agencies make it hard to keep ahold of corporate marketing and other functions.
This was one of the key things I honed in on back in 2008 when I first wrote about the trend of HQs moving back to the global city. Saskia Sassen’s work on the revival of the global city noted the growth in specialized financial and producer services (like advertising). The rebirth of the global city was not built on traditional corporate HQ growth.
But then down the road, corporations started to restructure their HQs into what I term “executive headquarters”, with only top executive functions – generally only 500 at most – now part of the HQ. And that the HQ was now being drawn back to the global city in order to take advantage of the services infrastructure there. I noted how Mead-Johnson Nutritionals (makers of Enfamil baby formula) had followed this formula when it moved from Evansville, Indiana to Chicago. Here’s what the media said at the time:
Working in a large city will make it easier to conduct business throughout the world. Mead Johnson makes Enfamil and similar products and about half of its sales come from overseas. Having offices near Chicago, for instance, will place executives in close proximity to global-business consultants, leaders in the field of nutrition and an international airport.
Today we see that proximity to services providers, international airports, and the ability to recruit top global talent are all drivers of this. To date I’ve mostly noticed that the losing locations were clearly subscale cities like Evansville or Peoria. Now with Connecticut losing GE, it’s affecting larger business markets as well.
A-B’s New York office isn’t technically an executive headquarters, but it has some of the same characteristics. This isn’t about anything nefarious. It’s about companies doing what they think they need to do to address market realities. Mass market beer brands like Bud Light are in decline industry-wide. These kinds of moves are part of trying to stay market relevant. (A-B also just changed CEOs in response).
This is definitely a trend to keep an eye on since it will have a big effect on whether or not legacy business cities like St. Louis in the 1-3 million metro area range will be able to continue conducting business as the same level they’ve been used to doing. I think there is a ton of risk here in many cities, especially in the Midwest.
Examples like Austin or Nashville make me think that there is for a future for mid-sized metros to grow without having formal corporate headquarters. Both are important focal points for certain economic activities without having many corporate headquarters. Could Austin’s tech scene and Nashville’s music and near-sourcing of business services could be a model for places like St. Louis?
Austin and Nashville are still largely new places without a lot of legacy cost. Both cities were relatively small state capitol cities before the 1960s-70s, they don’t have a lot of crumbling infrastructure and don’t have a large social safety net. That translates to lower taxes and a more business-friendly climate.
If there is a force that can revive these cities, I don’t think it’s something we are anticipating, in the same way people in the 1920s didn’t foresee how the advent of air conditioning and suburbia would enable growth in the hottest parts of the Sunbelt, or how the “mountain lifestyle” loosely oriented around recreational marijuana and/or outdoor recreation has fueled the growth of Denver.
So, it’s simply the desire to live in a different physical environment that drives growth and not taxes, regulation, or the demographics of that place?
I think that the overall migration of people from the North to the South and Southwest is about climate. There are still a ton of jobs in the North, but since US citizens would rather move south, a lot of those jobs are filled by immigrants, which is how the populations of cities like NY or Boston keep from collapsing.
So Texas would be booming even if it were still part of Mexico because of it’s climate?
Matt: I doubt anyone here is saying climate is the only driving factor. Texas boomed because of oil, federal government (military spending) and yes, a free-wheeling culture with low cost land. But there is a trend towards warmer climates.
He did say that it’s climate period. My response was just to show him that he hasn’t thought it through. When he does he’ll see that things are far more complicated than people engaged in a zombie-like search for the sun.
So will the sluggish consumer brand-management behemoth that is P&G be the next to slowly depart its second tier metro HQ?
It meets all the criteria stated for moves like those of AB and GE.
They have a new activist investor who just won a seat on the board, so I would say that isn’t out of the question. I suspect that losing P&G’s headquarters would be painful for the region in the short-run, but beneficial for the region in the long run, as losing P&G would likely transform the region from a company town into the actual 2.5 million person metro that Cincinnati actually is.
Even the Cincinnati CSA is only 2.2 million, smaller than regional 2nd-tier competitors Cleveland, Columbus, Indianapolis, Pittsburgh, and St. Louis.
If losing AB hurt St. Louis badly (and it’s a bigger metro), losing P&G would definitely hurt Cincinnati, as ad/marketing companies would follow. A shift of other companies has already started: Chiquita is gone. GE elected to put its advanced jet engine facility near Purdue in Indiana instead of Evendale.
Metro Cincinnati’s demographic and economic indicators are significantly better than St. Louis or Pittsburgh. Metro Pittsburgh is actually shrinking in population. Cincinnati has a stability neither of its sister river towns have. Chiquita was tiny, Purdue is a college town and not an example of the concentration of professional work in larger cities discussed in this article. Cincinnati is more plugged into the growing southern economy than Pittsburgh or St. Louis. Cincinnati never had heavy industry and doesn’t have the physical or demographic legacy costs that come with that, either.
My point regarding GE is that they did not expand in Cincinnati when it would have been “easy” to keep the whole operation in one place. Where they did put it is secondary.
GE put it in a much smaller place than Cincinnati. That’s the opposite of the dynamic of corporations shifting professional-class work to larger metros that Aaron describes. The movement of manufacturing to rural locations is also a part of the changing economic geography of America but it’s something very different from the concentration of professionals in big cities. Cincinnati is getting pulled at both ends, losing manufacturing to rural areas, predominantly in the South, and professionals to bigger metros.
As I said, losing P&G’s HQ would hurt the metro in the short-run (short run being the next 20 to 30 years). However, losing P&G would allow the city and its culture to transform itself. As Aaron Renn says about Cincinnati, no other US city its size has more and does less with what its got. The exit of P&G would change that, as P&G (combined with Kroeger and the Lindners) basically have all of the elected officials in their pockets.
Only a Cincinnatian would consider 30 years “the short run.”
The short answer is Yes. I don’t expect P&G to move its HQ, but I think there’s a strong possibility they open an office in Chicago or similar city.
The same I believe has already happened at Eli Lilly. They bought ImClone in New Jersey, and now have a Manhattan research center, and other centers in San Diego, etc. Clearly Lilly hasn’t really grown on a net basis in Indy in a decade or more.
Is this an example of P & G looking for a way to shift work out of Cincinnati? https://www.cnbc.com/2017/11/15/pg-has-acquired-native-natural-deodorant-brand.html
The big issue is replacing companies that grow up and go elsewhere, just like teens that grow up. You just have to have more kids. The Midwest was used to relying on a few big companies that provided much of their employment. Building a new economy for this new business requires breeding ever more new companies, economic gardening,
One question that really interests me is, “What did Minneapolis do so right?” It was in such a similar position as Cleveland, St. Louis, Pittsburgh and etc., and yet it bucked all the trends. To the point that it blows the arguments I’ve tried to make about weather or being a company town out of the water. It makes me feel that there is something intangible about cities that a more rigid logical formula can’t properly quantify. Minneapolis feels like a triumph of a culture, and culture is such an ephemeral thing.
A working idea I have is that maybe what truly kills or slows a region is when the culture gets stuck in place. You need to maintain a certain cultural fluidity, and wen arrogance, complacency or even cowardice from repeated failures stagnates a city’s culture, the way is lost.
Minneapolis certainly proves that climate isn’t a factor here. Is Minnesota’s activitist political tradition important? Minneapolis/St.Paul is the only major metro in the state. Does this mean it has particularly strong political and economic power in the state, much like Atlanta in Georgia, and Denver in Colorado? Minnesota schools may be a part of the story, too.
As you noted, the Minneapolis/St. Paul metro is by far the largest in Minnesota. It’s also home to both the state capital and the state’s top university (U of Minn), two assets that would add to any metro’s resiliency. It would seem easy to attribute much of the success of that region to those factors. Missouri, however, presents an interesting counterexample.
When you look at Missouri, you have to big metros vying for clout (St. Louis and Kansas City), and the state capital and top university are located away from those regions in relatively small metros. Certainly one could be tempted to point that out when attempting to explain St. Louis’s recent struggles. But then the Kansas City region has kept humming along this whole time, despite historically playing second fiddle to St. Louis in importance, and Greater St. Louis has actually done OK outside of the 1980s and 2010s. In fact Kansas City has been growing as aggressively as Indianapolis and Columbus. Though the census estimates for this decade have it lagging slightly behind those two state capitals, it’s not by much.
Whatever is going on is very complex. I find it very tough to sum up.
I think you just did sum it up. When states and localities are pulling in the same direction, things are achieved that cannot be achieved when they are in competition with each other.
Is that the case with Missouri, though? For all I know there could be a lot of infighting between Kansas City and St. Louis. I don’t know a lot about that state’s internal politics. It does appear, from the outside, that the St. Louis metro is more divided than Kansas City’s metro, though the latter has its own suburban fiefdoms and issues with race relations.
“Why Did Minneapolis/ St. Paul Get It So Right?”… As someone from outside the region, I see that metro area as quite different from the other Midwest areas. My statements are only based only on what I’ve read and a few visits there, but they probably reflect the perceptions of others I know not living in the Midwest.
First, active recreation: MSP has a lot of lakes and trails that make it possible to get outdoor in the winter for cross country skiing. The “North Country” is not too far away.
Second, better education, both higher and K-12. MSP doesn’t seem to have the deeply routed problems that plague St. Louis.
Third, race. For better or worse, MSP seems to be more harmonious than St. Louis.
Fourth, business. It’s not just about General Mills or Pillsbury (if there still around!). There seem to be a lot of younger businesses making things. MSP seems to be a real manufacturing area.
There are very few Midwest metro areas that, as a younger person, I would have considered moving to for my career. MSP was one of them.
The culture is important.
MSP metro is more homogeneous racially than most metros in its size class. It’s on par with Portland and St. Louis, more white than the US at large (76% vs. 73%).
Fully 2/3 of Minnesota’s population identifies itself as being of Swedish, Norwegian, or German origin. This also leads to a large “overweighting” of the Lutheran Protestant denominations, which make up maybe 2% of the US population but close to 25% of Minnesota’s population (on par with Roman Catholicism).
As a result of being a Northern European, White, near-majority Lutheran/Catholic culture, the embedded commitment to the social gospel is pretty deep. Minnesota has been the destination of successive waves of war and economic refugees (Vietnamese, Hmong, Somali) since the 60s.
So cultural homogeneity is part of the answer. So much for the ‘power of diversity’ that is preached by many urbanists.
Wouldn’t it be the right type of cultural homogeneity? West Virginia isn’t very diverse, but Charleston doesn’t seem to be a booming city.
What is the “right type of cultural homogeneity”?
Brian Feldman’s superb article highlighted the impact on St. Louis of losing locally-based advertising agencies. This was part and parcel of the wave of consolidation that also reduced the number of Fortune 500 HQ’s in St. Louis from approximately 30 in 1970 to fewer than 10 today, e.g., good-bye Pet, Wetterau, Kellwood, Brown Shoe, Ozark Airlines, Edison Bros., May Dept. Stores, and many others. Also crippling the city was the absorption of all of its leading banks by out-of-state buyers.
How can St. Louis recover? It’s made a good start by reaching #1 status worldwide in plant science. As a result, the acquisition of Monsanto by Bayer is likely to increase the number of related jobs in St. Louis, as Bayer concentrates its efforts in plant sciences in that city. An effective public-private partnership, Cortex, is parlaying the plant science leadership into a broader biotech business, conveniently focused on a central corridor connecting the city’s two main research universities, Saint Louis University and Washington University.
Capturing Amazon’s HQ2 would truly accelerate the progress being made. The breadth and availability (most are free of charge) of cultural institutions in St. Louis compares to cities twice its size. The affordability of housing, relative wage levels, an airport that can be quickly scaled up to meet international needs (36 gates currently mothballed, but the runway capacity exists), move-in ready structures in a semi-dense CBD (including a vacant 36-story single tenant configured skyscraper) make St. Louis’ bid for that HQ2 much more than a pipe dream.
There is no good, short or long term, for Cincinnati in losing the P&G HQ.
Have you ever lived in Cincinnati? Cincinnati losing P&G would be like New York losing Tammany Hall. Painful, but absolutely necessary for a flowering and rebirth of the city. So long as P&G is in Cincinnati, Cincinnati will be insular, small “c” conservative, anti-entrepreneurial, and have a political culture focused on serving the needs of shrinking corporate behemoths that could leave at any moment and a social culture focused on preparing young folk to work as venerated drones at the few Fortune 500 companies that remain. That is to say, it will continue to have a culture that works to push the kinds of people who start new businesses somewhere else, and neglect to do any sort of economic gardening.
I think you overestimate the importance of local elected officials on the economic dynamism of Midwestern cities like Cincinnati or, for that matter, St. Louis. Politicians in the Bay Area focus 100% of their energies on virtue signaling for progressive causes and wouldn’t lift a finger to help a business of any size. It hasn’t really made any difference at all.
The P&G HQ should be a source of managerial talent in consumer marketing strategies or packaged goods brand management that spawns multiple small companies that put such talent to use. Silicon Valley wouldn’t have happened in Intel and HP decamped for the east coast 30 years ago. Perhaps what Cincinnati lacks is the locally-focused venture capital community that would exploit the P&G presence.
But would P&G and their executives work with small consumer marketing companies or packaged goods brand management companies, or would they actively try to kill those companies? As you indicate, local politicians may not matter as much as other factors, such as culture or access to venture capital. But considering that P&G and its executives should be the source of venture capital in the metro, I think it is telling that there doesn’t appear to be significant venture financing available. P&G sets the tone for the entire metro area, which is of course amplified by politicians and other local big wigs. The message that it sends is that change is bad and should be resisted, and that difference and non-conformity are bad as well. I cannot imagine how a metro in which the most powerful, influential, and respected people in the community continually broadcast this message can be all that successful in the 21st century. I mean, even the Amish recognize that resistance to change and adherence to tradition should be an informed decision (see the rumspringa).
There’s very little evidence that big companies are good for startup growth, except in terms of disaffected employees leaving. Many of the second generation of Silicon Valley companies were people fleeing Fairchild. The same has been true of Microsoft in the Seattle area, where the only company that wanted to be near it was Google, which came to town to poach its employees. To this day, startups are afraid to be near Microsoft because they are afraid it will come after business that it wouldn’t consider before employees went out on their own. Big American corporations have a pretty long tradition of rejecting internal business proposals that would cannibalize their own products, only to see people go out on their own and make those products themselves. The day the iPad came out, the guy who was in charge of similar efforts at Microsoft wrote an op-ed piece for the New York Times about how other divisions were so fearful of his product that they wouldn’t even give him the code for a keyboard.
If “disaffected employees leaving” big companies got Silicon Valley going, we have to consider it an important part of economic development in other places too.