Cadbury’s parent company Mondelez has reported a less significant impact on sales than expected from the introduction of high fat, salt and sugar (HFSS) restrictions in UK stores, with CEO Dirk Van de Put expecting volumes to return to growth in the near future.
While the full extent of the government’s plan to restrict the advertising and promotion of HFSS foods has yet to be finalised, the first wave of restrictions were introduced in October, placing limitations on where products can be promoted in store. Stores over 2,000 sq ft are no longer allowed to place HFSS items near checkouts, entrances or at the end of aisles, with additional limitations in place online.
Around 40% of the chocolate and snacks company’s UK sales are “impulse” buys, so the new rules have had some effect on sales, Van de Put admitted on a call with investors yesterday (31 January).Ritson: Marketers, like chancellors, need time in the job to succeed
However, initial signs suggest that impact is “less” than expected, as the business partners with stores to find secondary promotional locations and to make its brands stand out in aisles. Category volumes were down 1.1% in December and declined 4.5% over the last 12 weeks.
“I would say the category is holding up quite well as it relates to the changes we’re seeing in store…Yes, there is an effect, but it’s far from the magnitude that we could have taken and I’m expecting that [as] the consumer gets used to this new setup of the stores that the volume growth will come back,” Van de Put said.
Speaking to Marketing Week in May, market research company IRI said “impulse” categories were emerging as the most affected during HFSS store trials. However, there were distinct differences within them. While the IRI saw overall chocolate category sales decline by 7%, some of the brands within the category “actually did really well”, according to head of marketing Chloe Humphreys-Page.
“If these differences in uplift continue to exist when retailers’ HFSS plans are rolled out across their estates come October, we could see huge swings in category share as a result of the regulations,” she said.
The introduction of additional restrictions banning HFSS advertising on pre-watershed TV and online has been delayed until 2024.
Holding off on promotions
Meanwhile, 2022 was a “record year” for Mondelez. Net revenues increased 9.7% to $31.5bn (£25.6bn), while gross profit increased by $58m (£47.1m) to $11.3bn (£9.2bn).
Asked if Mondelez plans to roll back prices or increase its promotions this year to appease retailers, Van de Put said this was unlikely. The business is continuing to see double-digit cost inflation, he said, and is in the process of implementing price increases in Europe.
“From a promotional perspective, since we are rebuilding our customer service and our inventories in clients, there is no need for us to promote more,” said the Mondelez CEO.
“In fact, what we’ve done in the last month is promote less to get our customer service back up. As long as volume continues to be this strong, we are not planning to increase our promotional pressure at all.”
Last year, Cadbury Dairy Milk won the grand prix for best advertising at the IPA Effectiveness Awards for its ‘Glass and a half in everyone’ campaign. Despite no increase in annual ad spend, by 2021 the brand was taking in an extra quarter of a billion pounds in incremental sales compared to 2017, when the campaign began. For every £1 Cadbury spent, it took in an additional £3.50 in sales.