P&G once again beats sales expectations

From the C-Suite newsletter: The company continues its focus on productivity as competitors start similar "reinvestment" plans.
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P&G has once again performed better than expected in its Q1 2020 results, but that doesn’t mean the CPG giant’s marketing spend is going to increase any time soon.

The company once again beat analyst expectations with 7% organic sales growth in Q1. Performance for the company was strong across nearly every category, with a 10% sales increase in beauty, 9% in health care, and 8% in fabric and home care. However, organic sales in the shaving category were up only 1%, with the company citing competition from both legacy brands and new entrants.

In a media call, Jon Moeller, P&G’s vice chairman, chief operating officer and chief financial officer, said it spent $214 million in “marketing reinvestment” and that ad spending in total was up roughly 9%. Most of those increases were in media spending, as the company continued to cut back on overhead (mostly compiled of agency and production costs) to the tune of $125 million. In the 2019 fiscal year, total advertising costs at P&G were $6.8 billion, down from $7.1 billion in 2018 and 2017.

In a later investor call, Moeller said the company was continuing on its path of “reinventing brand building from wasteful mass marketing to mass one-to-one brand building, fueled by data and technology.” That means the company is continuing on its path of simultaneously cutting costs and agency fees, while also reinvesting in its brands to raise prices.

“If you’re in categories where performance drives brand choice, you’d better perform,” Moeller said. “We made a deliberate choice to invest in the superiority of our products and packages, retail execution, marketing and value in all price tiers where we compete, strengthening the short and long-term health and competitiveness of our brands.” He added that additional investment would be needed in order to sustain its progress, noting that “productivity” would be a major focus for the company and there remained opportunities to find more efficiencies in media. Moeller also pointed to an organizational restructuring, completed in July, as helping to simplify P&G’s organizational structure and focus its efforts on strategic goals.

The other reason P&G is looking to continue on this path is the expectation that competition, seeing the results P&G has posted in recent quarters, have made plans to similarly reinvest in their businesses and brands.

“We have not seen anything destructive in a mass aggregate scale in the marketplace from a competitive standpoint, and we operate in very competitive industries,” Moeller said, adding that volume that’s being sold on things like promotion isn’t going up – but there has been increased activity in CPG when it comes to what’s coming from new activities and innovation. “That’s generally constructive for market growth [...] We’re in a better position to deal with that than we’ve been in a long time, given increasing percentage of our sales that are superior from a product packaged communication go-to-market standpoint. But we still have work to do, which is why we’re going to continue to invest and fund that through productivity.”

 

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