Colgate-Palmolive's strategy in response to 'unprecedented' inflation

Colgate-Palmolive, the consumer packaged goods (CPG) manufacturer, is leaning on advertising, analytics and a balanced portfolio as it responds to the “unprecedented” inflationary environment.

The background

• Noel Wallace, CEO of Colgate-Palmolive, told investors on an earnings call that current levels of inflation represent an “unprecedented environment” for the CPG sector.
• The firm’s price rises in response will be tailored to categories and competitive structures in different markets, but Wallace anticipated that increases were likely across the globe.

Advertising has a key role

• In terms of advertising, Colgate plans to match last year’s expenditure for the remainder of the year, with an emphasis on moving funds to working media from non-working media.
• “We’re spending a lot more time thinking about our digital advertising and the return on investment,” Wallace added. “We feel pretty good about where we are from an advertising standpoint and intend to continue to invest to build our brands.”
• For Colgate, strong profit margins are vital, as they will allow it to continue supporting advertising expenditure and so, in turn, build sustainable growth.
• “We will continue to be focused on getting pricing into the P&L as that allows us to maintain the advertising support to drive the top line and make sure we get our innovation well-seated in the marketplace,” Wallace said.

Building a balanced portfolio

• One strategy Colgate-Palmolive has developed based on previous inflationary periods is to ensure its portfolio has a balanced slate of options for consumers.
• “We compete across multiple price points – in some countries, five to six different price points in a specific category,” Wallace said. “That allows us to be very thoughtful on where we take pricing and when we take pricing.”
  
• The ability to “flex” its portfolio in this way “buffers us a bit … against any trade down that we see in the marketplace,” Wallace continued.

Analytics informs strategy

• Analytics has a valuable role in guiding Colgate’s approach in a rapidly-changing environment where financial variables are in a state of flux.
• “A lot of the analytics that we have in place … now allow us to see where consumers are trading in and out of, to ensure that we’re adjusting our strategies accordingly,” Wallace said.
• Equally, the firm’s learnings from past times of high inflation have given it the chance to “think very carefully about how we want to adjust to this moving forward”.

Promotions are lagging

• While it might be assumed that promotions have a more important role as the cost of living rises, Wallace argued supporting price increases is currently more common industry-wide.
• “My instinct is you’re not going to see a lot of people chasing volume by discounting price,” he added.

Sourced from AlphaStreet