Rebh took one further precaution. He required that all his employees sign noncompete agreements. Since that time, no one has broken ranks and joined News Corp.
As the competition between News Corp. and Floorgraphics has heated up, Rebh's files documenting News Corp.'s aggressive business practices have grown. For example, there is a letter sent to retailers early last year by Dominick Porco, who was then News America's president. The letter charges that Floorgraphics had complied with its promises to advertisers "below 50%" of the time. The claim, Rebh insists, is dead wrong (he cites an independent audit that put the company's average compliance rate between 91% and 94%) and is "clearly defamatory," although Floorgraphics has not filed suit. "We don't like to sue News Corp.," he says. "They've got a lot more money to put in a lawsuit than we do."
On October 19 came the "Thursday massacre." Within 73 minutes that morning, four of Floorgraphics' leading salespeople defected to News Corp.
The Floorgraphics headquarters is on the second floor of a small office building with large windows and blond oak paneling. The office is a short walk to the Princeton Junction commuter rail station, from which it's only a one-hour train ride to New York City, where Rebh's sales reps call on ad agencies.
In the teeth of News Corp.'s challenge, revenue growth has slowed. Still, it has continued rising at a remarkable clip. From 1999 to 2002 company revenue rose 280%, to $61.7 million. Sales for last year were projected to reach $75 million.
To outflank News Corp. in appealing to advertisers, Floorgraphics has devised an array of sophisticated new floor ads. An electronic version talks and flashes (a diaper ad emits a baby's giggle, for example) when a shopper steps on a button. There's also a 3-D model. Determined to become a smarter competitor, Floorgraphics has applied for patents covering those new technologies.
And the company has been extending its reach beyond the U.S, with a subsidiary in Spain and licensees in Europe and Latin America. All told, it has a tentacle of one kind or another in 18 countries. "In-store marketing is an American innovation that we believe will spread around the world like blue jeans and rock 'n' roll," Rebh says. "I don't think News Corp. is going to challenge us internationally because they're focused on the U.S. marketplace."
In the U.S., the rivalry with News Corp. has been at its most intense in the jockeying over the in-store marketing contracts of the nation's biggest retailers. The results are mixed. Floorgraphics retains A&P and Safeway in its camp, while News Corp. has gained Kroger, Albertsons, and--a big loss, symbolically--Kmart. (In September 2001, in the midst of haggling about its contract with Floorgraphics, Kmart sued, alleging that the company purported it had a "lifetime contract" with Kmart and that it was interfering with and intimidating potential advertisers. Floorgraphics countersued for damages, claiming breach of contract. The claims, which were stalled during Kmart's bankruptcy proceedings, are still pending.)
By Rebh's reckoning, Floorgraphics and News Corp. have achieved rough parity in their attempts to invade each other's turf: News Corp. has floor-ad contracts in about 5,500 grocery stores (versus Floorgraphics' 10,000), while Floorgraphics has instant coupon machines and other in-store promotion programs at 4,500 locations (versus News Corp.'s 11,500), he says. (According to News Corp.'s website, its floor ads are in 7,500 drug, grocery, and mass merchandise stores, and it has a marketing presence in 30,000 stores.)
News Corp. has been gaining share in its freestanding insert business, which Rebh attributes to its ability to leverage its in-store marketing. Rebh says it works like this: If advertisers will agree to make News Corp. their exclusive FSI dealer, they can have discount rates for their in-store ads and promotions.
The effect has been to depress the rates that Floorgraphics charges, cutting into its profitability. Rebh's response has been to reduce expenses at Floorgraphics. It has 80 employees, down five from two years ago, and the company operates on a tight budget; staffers fly on discount airlines and bed down in places like Motel 6 or Holiday Inn. Rebh also implores retailers to think far ahead. "Remember how they acted when they were in control," Rebh tells retailers, referring to News Corp.'s pressure to accept lower fees in the wake of the ActMedia merger. "They want the money. They're not about paying you a fair rate."
To keep his company as competitive as possible, Rebh works extraordinary hours. Many nights he sleeps on a pullout bed in his Floorgraphics office. His only companion is Nicky, a short-haired calico cat. He logs 80 hours a week in the office, he says, not counting sleep time.
"That's the only way we can survive," he says in a somber tone.
