Diving letter:
- Procter & Gamble increased its marketing spend 7% annually last quarter as consumer goods giant (CPG) saw higher demand for brands like Tide, Mr. Clean, Dawn and Cascade. Revenue rose 8% to $ 19.7 billion for the quarter ended December 31, largely due to the strength of its household and health brands during the pandemic, according to a quarterly earnings release.
- Jon Moeller, vice chairman, COO and CFO of P&G, described the increased marketing of the company with its sales growth as “appropriate” and said on a conference call: “I would definitely not want to call them back, but I assume they” We’re going to be pretty much in line with sales, with some efficiencies potentially available to us. “
- Considering how P&G managed to accommodate changed shopping behavior during the pandemic, Moeller said the company’s e-commerce sales were up 50% year-over-year and account for more than 14% of global business. P&G also raised its full year estimate for total revenue growth to 5% to 6% from a previous range of 4% to 5%.
Dive Insight:
The pandemic resulted in broad, increased consumer demand for household products and significant growth in e-commerce sales, two trends that P&G expects to continue in the face of public health and safety awareness. The CPG giant sees itself well positioned in this regard, also because many of its brands are established offerings. This positioning so far, as well as the more optimistic outlook for the year, suggest that P & G’s marketing spend will remain higher.
During a conference call with analysts, Moeller expressed his optimism that several macro trends will work in P & G’s favor in the future.
“There could be a further increased focus on at home, more time at home, more meals at home with a corresponding impact on consumption,” said Möller. “The importance of noticeably superior performance, potentially gross, the potential for increased preference for established reputable brands that solve reformulated problems better than alternatives, potentially less experimentation, potential for a permanent shift to e-commerce, both for e-tailers as well as for omnichannel. “
P & G’s Fabrics and Home Care category, which includes Tide Laundry Detergents and Dawn Dishwashing Detergents, saw sales grow 12% with volume growth of 7% – a void suggesting the brands have strong pricing power. Its health products, which include the Oral B line for dental hygiene, increased sales 9% with volume growth of 4%, another key growth driver for the company. Sales in beauty, personal care and baby, womens and family care brands also grew, but not as fast as the company’s total sales.
P & G’s pricing power is a sign that consumers are also realizing the value of their brands when shopping online, where consumers can find a wider range of lower-priced private label brands. P&G is among those companies that saw e-commerce spike over the past year as domestic buyers increased their spending, but a key test will be the company’s ability to sustain sales growth and pricing power.
“I have always seen this channel and the development of this channel as well established and preferably brand-friendly – not an unfavorable situation, but a favorable situation for growth,” said Möller about e-commerce sales channels. “We should continue to do well in categories where performance dictates brand choice.”
P & G’s increased marketing spend is due to the company also looking for efficiency in media planning and purchasing. The company does about 80% of its US media planning in-house, and all of it in-house in China, its second largest market, said Chief Brand Officer Marc Pritchard last week at the Consumer Electronics Show, which was held virtually this year.
P&G unveiled several electronic devices at CES, a sign that the company expects further growth in devices such as its Oral B products, which resulted in electric toothbrush sales increasing 20% in the December quarter. Products on display at CES included the EC30, a cleaning sample made without water or plastic packaging, and Microban 24, a disinfectant spray that launched last February.
