Mondelez to continue cost-cutting strategy in an effort to turn around profit

Mondelez has vowed to continue pushing more money into what it sees as more cost-efficient channels, such as digital, in order to improve returns after profit fell in its latest quarter.

Dairy Milk Oreo

The company saw net profit drop by 72% to $500m in its latest financial quarter. Meanwhile, organic net revenue grew by 2.9% when stripped of currency fluctuations, and by 1.1% in Europe.

In a call with investors yesterday (11 February), Mondelez CEO Irene Rosenfeld defended the mixed results by saying: “We generated strong earnings growth and margin expansion in a challenging environment by driving record net productivity and aggressively reducing overhead raised prices to recover higher input costs and protect profitability.”

Last February, the company introduced zero-based budgeting, a strategy that involves media plans starting from scratch rather than being based on the previous year’s spend.

It also said it would reinvest savings into digital, which is not only a cheaper form a media but also a more targeted and direct way of reaching consumers.

Brian Gladden, chief financial officer for Mondelez, told investors that the company “aggressively reduced expenses” by leveraging not only zero-based budgeting but also other cost-cutting tools in relation to media and marketing.

“We expanded margins by driving efficiencies in the non-working elements of our media spend, including significantly consolidating suppliers,” he said. “We also reduced production costs as we shifted more advertising to media outlets.”

However, he says the company increased its overall advertising and commercial (A&C) spending on its power brands and innovation, something Rosenfeld said it will continue to do in 2015.

“We will continue to focus on what we can control, reducing costs, pricing to protect profitability and driving power brands and innovation platforms in key markets,” she said.

She adds that innovation will remain key, having contributed 13% to the company’s revenue in 2014.

Earlier this month, Mondelez-owned Cadbury UK pushed a new campaign to drive consumers to try its more recent Dairy Milk variants, such as Daim and Oreo, with a promise of continued innovation in the coming year.

“We’re quite comfortable that we’ve got a pipeline for 2015 that will basically drive the underlying growth that we’ve laid out in our commitments,” she said.

The company initially introduced a more “cost-focused culture” early last year after a disappointing performance in 2013, stating it would be switching to cheaper digital channels and looking to streamline its business in an effort to deliver $3bn (£1.8bn) in savings over three years.

Savings were understood to be shifting from traditional channels such as TV to targeted digital platforms such as online video, which the company said it planned to push 10% of its global spend into.

In its November financial results, Mondelez said it was already seeing the benefits of lower advertising costs and cost-focused demands on marketers, and announced hopes to spend more than half of its global $200m ad budget on digital by 2016.

Mondelez is not the only company adopting the zero-based budgeting and cost cutting culture. Coca-Cola, AB Inbev and Heinz are also using elements of the process in order to generate better return on investment from their marketing budgets.

Mondelez expects to see organic revenue of at least 2% in 2015, with growth rates remaining consistent with 2014 or falling slightly below.

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