P&G to Maintain Adspend-to-Sales Ratio Despite Soaring Costs

07 August 2008

CINCINATTI: Even in the face of spiralling commodity costs, Procter & Gamble, the Big Kahuna of global fmcg marketing, plans to maintain its current 10.4% adspend-to-sales ratio through its fiscal year to June 30 2009, revealed cfo Clayton Daley in a conference call to analysts. 

Boosted by the tailwinds of a frail dollar and robust growth in developing markets, P&G spent around $8.7 billion (€5.62bn; £4.45bn) on global advertising for the financial year just ended, up 9% from $7.9 billion in 2006-07.

That's the good news. The bad is that its organic sales growth lags that of global competitors such as Colgate-Palmolive, Kimberly-Clark, L'Oréal, Reckitt Benckiser and Unilever.

Nonetheless, in its fourth quarter the planet's biggest advertiser boosted organic sales (net of currency fluctuations, acquisitions and divestitures) by 5% to $21.3 billion.

As to its new fiscal year, P&G anticipates spending $1 billion more on commodities and energy than it estimated just three months back. Despite which chairman/ceo Alan G Lafley maintains his Little Mary Sunshine stance.

"If you look at consumer shopping behavior over the last several weeks and months, what's going on is she is reducing trips - right? She is consolidating her shopping. That has advantaged the club channel, where we are in a higher-than-fair share position. For some shoppers, it has been good for discounters."

What's more, the Cincinatti colossus is reluctant to keep passing costs on to belt-tightening consumers.

"Pricing beyond commodity and energy cost increases to maintain operating margin would be very risky, given the pressure that our consumers are under," opined cfo Daley.

Instead, belt-tightening within the company remains the order of the day with the goal of reducing executives at general-manager level and above, including those in marketing, from around 360 to three hundred.

Data sourced from Wall Street Journal Online and AdAge.com; additional content by WARC staff