Mondelez: ‘We’re starting to see benefits of cost-focused culture in marketing’

Mondelez International says the recently introduced cost-focused demands on marketers is already yielding benefits as lower advertising costs and overheads offset lower revenues in its latest quarter.

The ad spend for brands such a Oreo will come under tougher cost-control measures going into the new year.
The ad spend for brands such a Oreo will come under tougher cost-control measures going into the new year.

The snacks maker has been prepping senior marketers along with executives in other parts of the business to make sustainable cost-reductions since February.

The process, dubbed zero-based budgeting (ZBB), encourages those marketers to pull funds from costs that have no direct impact on sales to feed into areas such as packaging and innovation.

Mondelez is in the midst of planning its first annual budgets under the ZBB process but the culture shift is already having an impact on its performance. Organic revenue, which excludes the effects of currency and other fluctuations, rose 2.7% in the three months to September as price increases, lower advertising costs and improved supply chain efficiencies offset weaker volumes.

While the increased prices helped lift profit margins in the quarter, Mondelez admitted the move hurt sales volumes, particularly in Europe where some retailers decided to stop selling its products. Total revenue fell 1.6% year-on-year to $8.3bn in the period, while volume dropped 3.1%.

Speaking to analysts on a conference call yesterday evening (5 November) Irene Rosenfield says the business is “choosing to focus on what we can control, which is costs” amid shopper demand it expects to remain “soft” for the near term. Changes to the company’s “spending policies” are already making a difference in overheads, which are expected to continue to build going into 2015, she adds.

On the same conference call chief financial officer Dave Brearton said that ZBB had already secured quick wins in advertising costs this year.

“[ZBB] started this year around mostly just making people aware and trying to take its new approach to looking at things,” he says.

“We’re in our first cycle of building budget that way, so I think we’d expect to the savings continue and build into 2015. Specifically on the A&C [advertising and consumer] line, I think most of the low hanging fruit would have come this year, but will be a carry over benefit to some of that carrying over to next year when we get the full year benefit.

“But I think you will see more of the ZBB savings on the overhead line and less A&C next year, but I think if we’ll build as we go through the year as well.”

The savings are likely to flow from the company’s shift of ad budgets from traditional channels such as TV to cheaper, more targeted digital platforms. It plans to pour 10% of its global spend to online video in 2014, with much of it going toward Google via its exclusive deal with the media owner.

Mondelez hopes to spend more than half its global $200m ad budget on digital by 2016 after finding online campaigns for brands such as Crème Egg yielded a better return on investment than from TV ads.

The ZBB approach is one being adopted increasingly by other FMCG brands as they look to address slowing sales in mature markets and growing competition in emerging regions such as India and China. Coca-Cola, AB Inbev and Heinz are using elements of the process in order to generate better return-on-investment from their marketing budgets.

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