What P&G, Diageo, Coke & Unilever’s earnings updates reveal about cost-crisis marketing
This week, the biggest FMCG companies in the world (which also happen to be the biggest ad spenders in the world, pumping billions into marketing every quarter) issued their latest earnings reports. Here, we look at what they told investors about how they’re navigating the cost-of-living crisis and what that signals to the ad industry on their spending plans.
How FMCGs are thinking about ad spend
But first, let’s put their figures into context. This week, Nielsen analyzed people's spending habits on groceries over the quarter. In short, both the amount people are buying and how much they’re spending on it is down. This is especially true in packaged goods and general household items. Nielsen said 34% of people are now cutting back on their grocery purchasing as they try to keep an even keel as inflation rises.
Meanwhile, the IPA recently warned the industry that a cull to marketing spend as margins tighten was looming. Its quarterly survey found that marketers were generally maintaining spend this quarter, but it slashed its spend forecast for the remainder of the year and next, predicting that budgets will retract.
Yet, major FMCGs indicated this week that this was not on their agenda. In fact, most are increasing their marketing spend despite economic headwinds.
This is not necessarily CMOs being handed additional budget, though. Forrester analyst Brandon Verblow said these on-paper increases in FMCG budgets are essentially just spend returning to normal levels after the deep cuts made during the pandemic.
Forrester predicts that FCMG marketing spend will grow 6.5% in 2022. “That growth is above FMCG’s historical average,” said Verblow. ”However, it implies only an average annual growth rate of 2.5% from 2019 to 2022 – roughly in line with FMCG’s average annual growth rate of 2.0% from 2014 to 2019.”
Here’s a breakdown of the key numbers and comments from the major FMCG companies to report this week:
P&G chief executive Jon Moeller said the list of challenges the business faces in the coming years is “longer than any [he] can recall”. For the three months ended June 30, sales rose 3% to $19.52bn. Price rises of 8% came with a 1% decline in volume.
P&G said it made savings through marketing efficiencies, thanks to better targeting capabilities on TV and digital. Cost-per-effective reach is down, it said. It reinvested these savings back into the marketing function.
More than 50% of its marketing spend is now digital. However, as it continues to find efficiencies in marketing spend, it will put any savings into “offsetting inflation“ rather than straight back into the marketing mix.
Its promotional spend – ie products sold on offer – was up to $300m, with 27% of its products now sold on deal. Though it has no immediate plans to increase this, it said “tactical decision making is being made at market and category level“.
It added: “We want to win on innovation and clarity of offer, not price.“
Coca-Cola’s revenue in the second-quarter increased 12% from a year ago to $11.3bn (£9.3bn). That better-than-expected result came on the back of a 12% price increase across its portfolio of brands.
Despite the hikes, chief exec James Quincey said he is yet to see a pullback in spending from consumers, rationalizing that they will make savings from big-ticket items first: “They then start saving on the lower ticket items and they trade down in categories that have weaker leader brands.”
Despite this positive outlook, Coca-Cola has increased marketing spend to ensure it is building favor with its brands, saying it wants to “continue to focus on raising the bar“ and to “expand the circumstance of what [it] can control”.
A new marketing model is at the center of that. WPP agencies were hired in November after a lenthy pitch process to lead in an overhaul of its strategy, which has put “experiences that link consumption occasions with consumer passion points“ at the core.
Expect more campaigns like Coke’s ‘Magic Weekends’ which saw it partner with food delivery companies like DoorDash for combo meal deals and marketing collaborations. The company said it delivered three-and-a-half times retention levels for Coca-Cola combination meals compared with pre-campaign levels, and a 50% lift in outlets with Coca-Cola Zero Sugar availability.
The price of Unilever’s products increased 11% in its second quarter, but sales volume fell by 2.1% as a result when consumers turned to supermarket own-brand goods.
Chief executive Alan Jope described the current state of play as “truly unprecedented” as the company battles inflation, supply chain pressures and ever-tightening margins.
To keep consumers on-side, in the first half of the year the FMCG giant raised its ad spend by €200m (£169m, $202m) to take its total brand and marketing investment (BMI) to €3.7bn.
In the second half of the year, it plans to continue to invest more in brand and marketing. Taking price hikes into account, it is expecting sales growth to remain between 4.5% and 6.5% for the year.
Diageo’s net sales rose 21.4% for the year to June 30, to £15.5bn, driven largely by Scotch whisky, tequila and beer brands.
It upped its marketing investment by a massive 24.7%, bringing its ad spend to £2.72bn for the year (compared with £2.16bn in 2021).
In the face of a “potential weakening of consumer spending power,” chief exec Ivan Menezes was determined for Diageo to carve out a bigger share of the market. It is aggressively targeting a 6% share of the total alcoholic beverages market by 2030 (starting from 4% in 2020).
“Consistent, strong investment in our brands has strengthened brand equity and enabled us to grow volume, increase prices and gain market share,” Menezes said.
Diageo highlighted its use of proprietary marketing effectiveness tools like Demand Radar, which uses AI to model demand scenarios, and Sensor, which measures the effectiveness of its media spend across digital platforms. It said Sensor has delivered a 30% improvement in ROI on media investment in the US.
Still spending, but is the message right?
With FMCGs reporting stable – if not increased – marketing spend, industry spectators advised that messaging in campaigns will need to change as consumers grapple with economic turmoil.
Nir Wegrzyn, founding partner and CEO at BrandOpus, said FMCGs shouldn’t be swayed by the tactics of supermarkets and get swept up in communicating just on price.
“The fallacy that in times of economic crisis we need to cut costs is perpetuated by supermarkets, as they benefit when the prevailing narrative is around saving money,“ he said. “Brands need to maintain an emotive brand-led narrative and create a role in the lives of their consumers, which is so strong that the decision to buy is easy.“
Grace Sinclair, loyalty strategy director at Merkle, added that the FMCG giants must ensure they are communicating transparently with consumers with clarity and honesty. “It’s something that cannot be done without investment in marketing efforts and will not only serve them better but will help with customer loyalty in the long run,“ she said.
“Alongside this increased investment, brands should be mindful of the content they are promoting and avoid falling into the trap of just extending existing business-as-usual campaigns. They need to ensure the extra investment is going into customer-focused marketing efforts aligned to changing consumer expectations and needs, making the brand-consumer relationship stronger and avoiding the risk of alienating their customers.”