Mondelez was surprised by the strong promotion spending in the UK and US it was forced into to “defend share”, which ultimately failed to deliver any growth for the category. Looking ahead, it has vowed a “more disciplined focus on innovation and brand marketing” among its marketers.
The Oreo-maker saw net revenue fall 8.1% to $6.77bn in the fourth quarter (against an expectation of $6.89bn among analysts) while net revenues decreased 12.5% for the year.
“There's a lot of trade spending dollars. It didn't do very much to drive the category and, in fact, all it did was sort of margin down the business,” said Irene B. Rosenfeld, Mondelez's chief executive.
“And again, 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.”
While it said it wouldn’t halt this kind of spend outright, it did promise a more “disciplined focus” on innovation and brand marketing.
“We certainly are going to be a little bit more disciplined as we think about how we want to spend our money. Again, 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,” continued Rosenfeld.
It comes against an “essentially flat” investment in advertising for the year, around 9% and “slightly less” in the most recent quarter after pulling back from India and the Middle East.
Mondelez has been trying to foster a more cost-focused culture among its marketers for the past two years after hiring Accenture in 2014 to reappraise its spending in a bid to deliver $3bn in gross productivity savings.
Brand managers have since adopted zero-based budgeting, meaning media plans start from scratch rather than based on the previous year’s spend in order to ensure that resources get bet on those marketers with the better strategies.
Chief financial officer Brian Gladden added that it has “benefited from some” zero based budgeting work which is seeing it continue to invest more in digital channels over traditional. “This has created for us more room and is cheaper obviously than traditional,” he explained.
The 'power brands' – Oreo, Milka and belVita – are still the main beneficiaries of this shift. This group grew above category rates, up nearly 3%, and returned $3.7bn to shareholders over the year. The sales from these brands now represent nearly 70% of its revenues.
“This focus is paying off. In 2016, our power brands continued to outpace category growth, led by Oreo, Milka, and belVita.”
It’s now seeing the success from exporting these brands to underserved markets, such as Milka chocolate in China and Nabisco biscuit in Japan, and it has just entered the US chocolate market with Milka Oreo and Green & Blacks.
With a target of £1bn in revenue from e-commerce channels by 2020, this group of snacks are the key products being pushed to consumers online.
“Despite our overall reduction in overheads, we've invested to build a dedicated e-commerce team and to enhance our supply chain capabilities in this space. These efforts are already paying off as our e-commerce business grew more than 35% on a reported basis in 2016," Rosenfeld said.