US ketchup giant Heinz has said that it will ramp up its marketing spending in the second half of the year in a bid drive sustainable sales growth.
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This morning (24 November) Heinz said that sales grew 2.5% to US$2.67bn, despite a 1% unfavorable impact of foreign currency, driven by double-digit gains in emerging markets.
However, the company saw soft volumes in the US and Europe, where consumer spending has come under pressure from the recession.
Speaking to analysts during a conference call, president and CEO Bill Johnson said that the group’s ‘better for you’ frozen meal businesses in particular saw sales slide when the category as a whole hit difficulties in January.
“If you were to back frozen out of our results for the quarter our sales were up 4-5%. Clearly we are wrestling with the frozen issue and that’s mainly in the US,” he commented. “The category is fighting the prevailing trend of the consumer – which isn’t buying ‘for me’ products.
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By GlobalData“Consumers are focused on value, which they are increasingly defining as price,” Johnson emphasised.
Retailers have responded by expanding their private label offerings and second-tier brand owners are discounting to cash in on the opportunity, resulting in an increasingly competitive environment, Johnson said.
However, while increasing competition has put pressure on Heinz’ sales in the first half, Johnson insisted that the slowing growth of private label presents the ketchup giant with an opportunity as well as a challenge.
“It is clear that the growth of private label is slowing as consumer confidence picks up – providing an opportunity for strong brands like Heinz,” he suggested. “Fundamentally, it has always been a retailer-manufacturer contest to see where the money goes so I don’t think we are seeing anything different, other than the price pressure from second tier and private label products.”
Heinz revealed that it plans to increase its marketing spending during the last six months of the year by a “minimum” of 20-25%. The investment will be seen in increased media spending – with large campaigns planned for the UK and US – the rollout of new products and price promotions.
“At every single one of our operating businesses, marketing will be up double digits in the second half of the year,” Johnson said.
However, he also emphasised that Heinz intends to adopt a “disciplined” approach that will drive sustainable growth rather than a short-term volumes lift.
“There is no point in chasing profitless prosperity, where you buy your volume and when you stop it goes away… You cannot build a business on a short term basis. We will contnue to take a long term disciplined approach that will drive sustainable growth,” Johnson insisted.
The increased marketing spend is expected to have a negative impact on margins in a 70-80 bps range.
