Mondelēz International is supporting the increase in shelf price by doubling down on investment in ad spend. The company’s advertising and consumer spend increased by double-digits year-to-date and it is also moving more of the investment into working media. According to chairman and CEO Dirk Van Dd Put, the company plans to increase ad spend by about 7% to 8% year-over-year to achieve category growth and have more brand innovation and visibility. It also plans to reinvest 50% of its operating profit into brand-building initiatives.
He added that the company has focused on its enablers such as increased brand investment, higher quality, and purpose-led marketing, and pricing for multiple years, and the investments “are really compounding”. Not only has ad spend increased, Mondelēz has also made “big strides” on the quality, the effectiveness, and the ROI of its marketing, Van de Put said.
“Mondelēz plans to raise prices by 6% to 7% in the US next January. It also implemented new pricing in Southeast Asia, Brazil, Mexico, and Russia, in addition to other business units”, CFO Luca Zaramella said during the earnings call. “The worst you can do, I think is increase prices and not increase your support for your brands,” Zaramella said. He added that its media pressure has significantly increased compared to three to four years ago. “We can see that the brand health is increasing. So I think our brands are now more susceptible to pricing and the consumer should accept it better,” he explained.
Mondelēz reported a 10.8% net revenue increase in Asia, the Middle East and Africa to US$1.6 billion in Q3 2021. Nonetheless, COVID-related restrictions in Southeast Asia did impact its earnings for the quarter. China delivered high single-digit growth while India delivered double-digit growth in the quarter.
“The only places in the emerging markets where we see some disruption is in some smaller markets, particularly Southeast Asia, where the COVID cases were quite severe and there were serious restrictions. We talked about our plant in Vietnam being closed for three weeks, and so that has had an effect on Q3 but hopefully, that will be temporary,” Van de Put said. Overall, Asia, Middle East, and Africa operating income dollars grew nearly 8% while continuing to make sizeable working media and route to market investments.
Nonetheless, it still plans to grow Oreo by US$1 billion by the end of 2023, with activations such as Oreo Pokemon, which became its fastest-selling addition of all time in the US, surpassing the previous records set by Game of Thrones and Lady Gaga Oreos, Van de Put said. Oreo Pokemon launched in September, with various Pokémon imprinted into the chocolate. Some Oreos also featured the uncommon Mew, a psychic mythical Pokémon.
Mondelēz’s net revenues increased 7.8% driven by organic net revenue growth of 5.5%, and incremental sales from the company’s acquisitions of Hu, Grenade, and Gourmet Food. Gross profit increased US$32 million and operating income increased US$159 million.
While the company expects elevated inflation and logistics volatility to persist, Van de Put said it remains confident in its plans to deliver on its financial algorithm, supported by compounding brand investments, pricing as necessary, distribution expansion, and its ESG agenda. This includes its recently announced target of net zero emissions by 2050.