Mondelez maintains marketing spend amid strong results

The consumer packaged goods firm Mondelez has posted strong revenue growth as its “affordable luxuries” continue to attract consumers, with advertising playing a vital role in fortifying its products in difficult times.

By the numbers

Net revenues for the Cadbury and Oreo maker grew 8.1% year-on-year in Q3 this year, driven by stronger pricing and volume.

Gross profit margins decreased slightly, for mixed reasons, including increased transport and labour costs as well as the effects of a strong dollar.

While results were broadly positive, the firm’s European business saw a quarterly revenue fall of 2.4%, signalling the effects of high housing and energy costs, making this region one to watch.

“Consumers in developed markets continue to prioritise groceries over other forms of spending, and they continue to view our brands as affordable indulgences,” chief executive Dirk van de Put explained to analysts during an earnings call.

“Meanwhile, in emerging markets, consumer confidence remains strong with growing demand for our categories and continued loyalty to our iconic brands,” he added. 

Why it matters

CPG companies ultimately act as marketing firms, using the power of their brands to imply that there's a difference between a Mondelez snack, a retailer’s own offering, or a rival's. That consumer tussle is usually decided far away from the shelf.

This brand strength has proved essential in an inflationary environment, helping to maintain profit margins (at least at a per-share level) by keeping pricing power strong.

But there is more to consider: with continued price rises expected in December, there are questions about how this could help precipitate a recession.

The importance of marketing

The company's chief executive explained the ongoing importance of maintaining brand spend in such an environment, and the need for long-term commitments.

“It is important for us to keep on increasing our A&C spending because we need to make sure that the consumer has trust in our brands and really want to consume them. And we can clearly see the effects of this year after year,” van de Put said. 

The basic conclusion is that “increasing our advertising will lead to increased volume, will lead to increased net revenue growth”, he added. 

Sourced from Mondelez, Seeking Alpha, The New York Times