Many CPGs are continuing to raise prices in 2023 as they face higher costs in the supply chain amid stubborn inflation. But as they charge more, companies must also continue to win over shoppers in the marketplace, so advertising spending is getting a boost this year, as well.
A shining example of the trend comes from Colgate Palmolive. The maker of Softsoap and Speed Stick increased advertising spending 14% in the first quarter of 2023 when compared with the same three months of 2022. That outpaces even the company-wide price increase of 12%. Unlike many CPGs, however, Colgate Palmolive did not suffer from a drop in volumes, indicating that consumers are being motivated to continue to pay for the company’s personal care and pet products.
In all, net sales at the company increased 10%, and gross profit margin improved. CEO Noel Wallace told analysts that increased advertising spending was a key piece of that equation, as the company seeks to “return to a balanced algorithm of pricing and volume growth.”
The company’s brands are continuing to roll out new products, and advertising helps to put messaging might behind these launches.
“To raise awareness of our innovation plans, as well as to support our pricing actions and drive brand health, we will fund marketing investment for our brands,” Wallace said.
An increase in digital advertising is accounting for a large portion of the spending increase.
“We’re seeing great ROIs on digital and our programmatic and the personalized content that we’re delivering in the market,” Wallace said. “We’re seeing growth in market shares relative to where we’re spending the money, particularly around the Hill’s business, and our oral care and skin health businesses. So we’re really pleased with the fact that the advertising levels continue to deliver against the expectations that we have. And we balance that off with obviously a broad portfolio of offerings that we think are attracting and building the brands that we speak.”
The increase in digital marketing spend can have a direct impact on digital sales. Ecommerce was also up double-digits for the quarter, now accounting for 14% of sales at Colgate Palmolive. In China, the company combined “premium science-led innovation with higher levels of advertising, more targeted digital content and more persuasive advertising copy” to stand out in a crowded toothpaste market, Wallace said. The result was growth in market share.
“We believe this is a winning formula across our categories and markets globally,” Wallace said.
In the end, Colgate Palmolive views advertising as part of a “circular” strategy.
“More advertising is driving the top line, and we’re able to get more leverage to the P&L to continue to support that,” Wallace said. “And we feel as we move out getting the pricing in the P&L was critically important to sustaining and increasing our levels of advertising.”
20% boost at Mondelez
At Mondelez International, the price increase was even higher. The maker of Ritz and Oreo boosted A&C, or advertising and consumer promotions, by 20% in the first quarter.
It helped Mondelez strike a similar balance to Colgate Palmolive. The company posted net revenue growth of 18%, as prices increased 16.2 percentage points. Volume/mix grew 3.2 percentage points, which bucks a trend of negative volumes observed at other CPGs.
“We in the end sell brands and it is important that we keep line of sight to that,” said CFO Luca Zaramella. “And I don’t think you’re going to see a consistently at 20% A&C increase, but at this point in time, where we are moving price points, where we are trying to retain and increase our consumer pools, it is important that we use these as an important accelerator of growth for years to come.”