The world’s top FMCG companies stepped up their marketing investments in 2020 in defiance of the Covid-19 pandemic, with their fourth-quarter results indicating that stronger recovery is under way, a Campaign analysis shows.
Unilever, Kraft Heinz, Mondelez International and RB all increased their advertising and marketing spend in a challenging business environment.
Unilever upped spend by €160m ($193m) at constant exchange rates compared with investment in 2019, which the company reported was at €7.27bn, meaning 2020 spend was up 2%.
Kraft Heinz confirmed it had spent $1.2bn, an increase of $100m or 11%, with prioritised brands receiving 18% more, while the company also boosted digital spend by 40%.
Mondelez increased by 14% to $1.4bn, while RB boosted by 7%, or £138m.
Procter & Gamble and Diageo have not yet declared their full-year results, as their fiscal year ends in June, but both pointed to increases in marketing spend in their latest earnings announcements.
P&G’s spend rose 7% in the final three months of 2020 even if it decreased slightly as a percentage of net sales, while Diageo bolstered spend by 1% in the half-year to £1.1bn – although the company said this was a return to previous levels after it “significantly reduced” spend in April-June 2020.
Elsewhere, PepsiCo spent $4.6bn on advertising and other marketing activities in 2020, including advertising expenses of $3bn, which was in line with 2019. But it was clear on the importance of marketing: “We have to keep innovating on those large brands. But also, we need to invest in the growth space of the category where sometimes we need to create new brands. And that requires a well-funded kind of support package to get those brands up and running.”
Its major soft-drinks rival, The Coca-Cola Company, cut advertising expense from $4.3bn in 2019 but will only reveal the 2020 figure when it publishes its forthcoming annual report.
In April 2020, the company paused all marketing spend at the height of the first wave of the pandemic. Chairman and chief executive James Quincey said during the company’s fourth-quarter results announcement: “We clearly took the decision that if there was not good reasons to invest in marketing… then we would not do so.” However, he added: “The more the recovery occurs in 2021, the more we are going to reinstate those expenses.”
That said, there is a general belief that marketing investment must be worked harder. Both PepsiCo and Coca-Cola have stressed an emphasis on “optimising” their spend, with the latter’s current global advertising pitch seeking to “improve processes, eliminate duplication and drive efficiency”. Mondelez, too, said it would focus on “working media” and RB wants to “improve the ratio of working to non-working media spend”.
Ian Whittaker, an independent analyst who previously worked at investment bank Liberum Capital until 2020, said “there is certainly an element of consumers moving to trusted brands” during the pandemic, adding: “There are other factors, some structural: Mondelez indicated it was shifting budgets from likely structurally lower travel and property budgets to advertising.
“There is no reason why these factors should change [post-pandemic], especially with ecommerce growing, which increases the importance of a direct relationship to consumers. Moreover, there is something of an arms race with each group reacting to opponents’ spending.”
This has likely made a difference to agencies. Paul Richards, executive director and head of research at Dowgate Capital, pointed out that, despite Omnicom reporting a decline in the fourth quarter, food and beverage, the holding group’s largest category, “held up well”.
He continued: “In lockdown, consumers who are unable to go out treat themselves to comfort foods when they stay in and spend on premium brands rather than trading down to own labels as they would in a typical recession.”
Michelle Bovee, manager of global market intelligence at Magna, observed that higher grocery demand did not translate to adspend growth in the wider food and beverage category, while there was also a fall in spend from beauty. That said, she pointed to increased TV spend from household goods and personal care, “driven by increased awareness campaigns as brands sought to remain top of mind”.
As for 2021 and beyond, Whittaker noted: “It’s noticeable P&G, which has been evangelical about reforming its adspend, upped its full year top-line guidance for the second quarter in a row. Expect others to follow their lead, including when it comes to reinvesting savings.”
In the context of the wider ad market, Bovee said: “Looking forward, we expect spend will be moderately up across the CPG [consumer packaged goods] sector, though there is little or no ‘easy 2020 comp’ effect that supports the double-digit growth expected for other sectors (excluding travel).”
Richards forecast that marketers will “continue to develop digitally led, personalised advertising at scale, as demonstrated by Mondelez’s recent appointment of S4 Capital”. Dowgate Capital advises S4.
Strong organic growth
In general terms, RB had the best quarter of the major players, with like-for-like revenue growth of 10.2%, and reported record annual results – thanks chiefly to its hygiene division, which saw booming demand for cleaning and health products because of Covid-19.
Next was P&G, a much bigger operation (with net sales of $19.7bn in the last three months of 2020 versus RB’s £3.6bn, or $5.1bn), which showed organic revenue growth of 8% in its fiscal 2021 second quarter.
While many key segments grew by single digits, including beauty and grooming, healthcare increased by 9%, while fabric and home care’s impressive 12% growth was down to an “around 30%” improvement in home care, which P&G attributed to “incremental marketing spending”.
For PepsiCo and Unilever, their significant food operations played a key part in their results.
PepsiCo posted 6% organic growth in the fourth quarter, with food growing the most. It cited Frito-Lay, in particular, as benefiting from “an increase in advertising and marketing spend across the brand”.
Unilever’s 3.5% organic growth in the same period was supported by a 13% increase in in-home food sales – although its hygiene division also did well with 11% growth, with handwash brand Lifebuoy growing by more than 50%.
For these companies, the fourth quarter showed a stronger growth rate than the year as a whole, indicating that consumer confidence is strengthening in the latter part of the year. PepsiCo posted organic revenue growth of 4% in 2020, while Unilever had growth of 1.9% for the year.
Some, though, managed to outperform in the full year. Mondelez posted 3.7% organic revenue growth in 2020, compared with 3.2% in the fourth quarter.
Kraft Heinz had full-year growth of 6.5%, up from 6% in the final quarter – something that the company attributed to “ongoing weakness in foodservice” and the impact from the exit of its McCafé licensing agreement. RB had full-year growth of 11.8%.
Coca-Cola and Diageo, meanwhile, with beverages as their key interest, showed weaker results. Coca-Cola posted a quarterly organic revenue decline of 3%, with a more startling full-year drop at 9% – a result the company said was due to reduced consumer activity from outside the home.
Diageo, which does not release quarterly figures, cited on-trade and travel retail restrictions in its July-December 2020 (fiscal 2021 first-half) results of 1% organic growth.
As is the case in the wider retail landscape, ecommerce was a huge growth area for most FMCG companies, with PepsiCo (up 90%), Unilever (61%), RB (56%) and Kraft Heinz (more than doubled) all reporting significant increases in these operations in 2020.
However, ecommerce remains small as a percentage of revenue, suggesting there’s room for further development.
At P&G, ecommerce grew “nearly” 50% in the calendar fourth quarter, accounting for 14% of the company’s total revenue in that period. Meanwhile, Coca-Cola described MyCoke, which allows people to order directly online, and Wabi, an app for businesses to accept local orders, as expanding.
Diageo pointed to ecommerce’s smaller role in the spirits segment compared with other consumer categories, but said it was growing – particularly strongly in the US and the UK.
Data from Campaign’s Advertising Intelligence tool shows that in 2020 global new-business billings in the FMCG sector declined by 30% to $14.5bn.
With new-business activity suppressed last year, and with FMCG companies experiencing growth and continuing to invest in marketing, there could be opportunities for agencies in 2021 as economic recovery steps up and “normal” begins to resume for consumers as vaccine uptake expands.
Indeed, Unilever is already preparing to launch a global media review that is expected to be one of the largest of the year.