21 Feb 2014 Food giants are trimming costs – but not advertising
For the packaged-good industry, the sales environment this winter has been about as bad as the American weather. Consumers are still reeling from the weak labour market and cuts to a food-stamp program. Emerging markets – normally a reliable source of growth – have slowed. And a growing segment of the population is being lured by fresh foods and smaller brands.
It was under that gloomy backdrop that executives of some of the world’s-largest food marketers gathered in sunny Boca Raton, Florida, this week at the annual meeting of the Consumer Analyst Group of New York. And while CEOs tried to put a positive spin on their future prospects, the tone of the conference reflected the harsh realities facing the industry.
Executives spent considerable time talking about how they are cutting costs and operating more efficiently, while discussion of new product launches — normally a big part of CAGNY conferences — seemed more muted than usual. But the silver lining for Adland is that the most of the CEOs presenting at the conference pledged to pour the cost-savings back into brand-building, including marketing and advertising — though how they spend it will increasingly be in digital.
Campbell Soup executives noted that the company had closed five plants and reduced headcount by 2,000. Mondelez International announced plans to use “zero-based-budgeting,” meaning every expense must be justified. Kellogg touted its “Project K,” a four-year program that seeks to generate up to $475 million in annual savings through efforts like plant closures and streamlining back-office functions.
And while there was discussion of product innovation, the mantra for the most part was “fewer, bigger, better” launches.
As several financial analysts noted, the new emphasis on cost-cutting has been prompted by declining sales volume as well as the precedent set by H.J. Heinz, which has maniacally focused on savings since being taken private by 3G Capital last year.
“This has [other companies] sifting through their own business operations for savings knowing that if they do not, they might just find themselves on the menu of private equity,” Nicholas Fereday, a senior food analyst for Rabobank International, stated in a report this week.
Kraft Foods, for instance, said it would reinvest 50 cents on every dollar of cost savings into its “brands and people.” Kellogg execs said the company would use some of the Project K savings to unleash a new “masterbrand” marketing approach that will use the Kellogg’s name to tout the benefits of cereal, which has suffered from new competition from the likes of yogurt and other morning-food options.
But even as companies put more money into marketing, they are increasingly looking to digital as a way to spread their message more efficiently. Kraft CEO Tony Vernon said the company’s digital marketing group “generated about $80 million of savings in 2013, because they were able to achieve the same, if not more, quality impressions at a lower cost.”
Mondelez, which sells brands like Oreo and Trident, pledged to pour more than half of its North American media budget into digital by 2016…..