Mondelēz is looking to take a “more disciplined” approach to its brand marketing in order to build its ‘power brands’ and move away from promotional spending.
The company, which owns brands such as Cadbury, Oreo and Sour Patch Kids, reported its fourth quarter and full year results yesterday (7 February), which showed net revenues decreased 12.5%, mainly due to currency headwinds, for 2016. Organic net revenue increased 1.3%.
Net revenue fell 8.1 per cent to $6.77bn in the fourth quarter. Analysts on average had expected revenue of $6.89bn, according to Thomson Reuters estimates.
The strong pound hit the value of sales outside the US, with sales in Mondelez’s largest market Europe down 4.7 per cent. They did though, edge up on a constant currency basis.
Speaking on a results call yesterday, the company’s CEO Irene Rosenfeld said that strong promotional spending in the UK and US was “a little tougher than expected”, leading to increased pressure on the business’s margins. As a result, the company will be looking to take a more disciplined approach to how it spends its marketing dollars.
“We chose to participate in that to defend our shares, but that’s not the right way to build the business for the long term. And I think as our customers experience the reality of that spending, we’re going to be able to get back to a more disciplined focus on innovation and brand marketing and price pack architecture,” she explained.
“We did not see the kind of returns that we had hoped for and, in fact, it basically took our spending away from some of the other longer-term equity-building activities. So you’re going to see us continue to migrate our spending.”
Mondelēz admitted that its advertising spend was “essentially flat” for the total year at around 9%, and slightly down for the fourth quarter. It is also looking to spend more on “power brands” such as Oreo and Cadbury’s to drive the overall business, as they currently make up 70% of its overall revenue.
“As you know and we’ve talked about, we continue to mix towards digital, which has created for us more room and is cheaper obviously than traditional. We’ve benefited from some zero-based budgeting work here and we’ve also continued to distort to the power brands,” explained Brian Gladden, CFO at Mondelēz.
“We’re very pleased with the performance of our power brands. Over time, as they continue to grow faster because that’s where we’re making our investments, we should see that growth pick up and they will be a larger portion of our overall portfolio. But they are growing faster than our categories and we expect that that will continue.”
Rosenfeld, meanwhile, revealed the company is looking to put a bigger focus on products in the well-being space, in order to keep up with consumer demand for healthier treats.
She concluded: “Well-being products are performing well, and over time we’ve made a commitment that by 2020, half of our products will be in the well-being space. They’re performing well, and you will see that continue to have a contribution.”