Masterfoods is wielding its checkbook more strategically these days.
The candy and food giant has been shifting funds from trade to consumer marketing more quickly and in a more targeted fashion, using measurement tools developed over the past 24 months to track local trade-promotion performance.
Masterfoods has boosted its consumer ad spending 20%, about $66 million, with 2006 ad spending projected at $398 million. That’s still shy of the $409 million that Masterfoods spent on measured media in 2004, per TNS Media Intelligence.
“We can really drive growth if we get the basics right,” says Masterfoods USA President Bob Gamgort. “We have to build a reasonable war chest to go after growth. We won’t cut ad spending or [consumer] promotion spending to fund growth.”
But Masterfoods has been scrutinizing its trade dollars, shifting funds from low-return activities to high-return events — and to key retailers. “We don’t lock our budgets in for the year now,” Gamgort says. “We can shift on the fly.”
So far this year, Masterfoods has shifted about $300 million from trade promotion to consumer marketing. Gamgort says there’s no “macro cut” in trade spending: “It’s event-by-event timing.”
The trimmed trade money is a fraction of Masterfoods’ estimated $1.2 billion in trade spending, only 2.5%, but it signals an important shift in retailer relations — and not just for Masterfoods. (See sidebar).
“We have few but very strong brands. That gives retailers tremendous ROI,” Gamgort says. New ad dollars are more likely to come from improved productivity and lowered overhead than trade promo budgets, Gamgort adds. Strict attention to improving productivity the last two years frees up funds for acquisitions, marketing and R&D.
Meanwhile, Masterfoods continues to anchor consumer promotions for its candy brands to the products and packaging. Next up: An M&Ms tie-in with Disney’s summer flick Pirates of the Caribbean: Dead Man’s Chest, seeding white-chocolate M&Ms in promotional packages to lure consumers into a treasure hunt. The movie opens July 7. Draft, Chicago, is Masterfoods’ lead promotion agency; the company also uses promo shops Catapult Marketing, Marketing Drive, and T.J. Paul.
Privately-held Masterfoods is pushing growth three ways: product innovation; investment in core marketing; and acquisition. Last month the company bought S&M NuTech, maker of Greenies dog snacks. The 4-year-old brand dominates the dog-treat segment and compliments Masterfoods’ pet food portfolio. Masterfoods’ dog biscuit/snacks sales are up 6% to $64 million in food, drug and mass outlets (excluding Wal-Mart), but its dog food sales are down: dry food fell 4% to $245 million and wet food fell 2% to $267 million for the 52 weeks ended March 19, per Information Resources Inc.
Meanwhile, Masterfoods’ R&D is riding consumer trends for convenience, better-for-you products and premium brands. Upscale Ethel’s Chocolates this year will expand beyond its 10 Chicago candy shops; a third M&Ms World opens too, joining attractions in Las Vegas and Orlando (which opened in December 2005). Meal Bones dog treats will relaunch as Whole Meal treats and expand beyond PetSmart.
Masterfoods is also discontinuing three under-performing brands: Aquadrops mints; cookie line Cookies & and bite-size Pop’ables candy, all small contributors to Masterfoods’ estimated $8 billion portfolio.“We talk with retailers about new products we’ve got coming, and get an honest point of view about what to cut,” Gamgort says. “We tell retailers, ‘Let’s not waste either of our resources.’ Retailers are looking for efficiency.”
Masterfoods tracks its own ROI with third-party data plus a “proprietary marketing mix” model, measuring trade promotion and consumer promotion by event, and media advertising by as much as a one-week flight. “If something’s not working on the brand, we won’t just hang in there. We’re shifting money a lot faster, and doing it across the board,” Gamgort says.
Masterfoods works closely with about 10 key retailers (and more to come), from Wal-Mart to Mom & Pops, to set marketing and new-product plans well in advance of launch. Take CocoaVia, the heart-friendly, flavanol-rich chocolate whose health-based positioning distinguishes it from, well, candy. “We had great debates about where to shelve it,” Gamgort says. Walgreens tested two spots and reported to Masterfoods which sold best. Two-year-old CocoaVia rolls out nationally this year from its current distribution in 900 stores (Walgreens, Meijers and some Wal-Marts).
Meanwhile, consumer promotions get account-specific attention. Large key retailers get custom-built consumer promotion plans; smaller retailers get a menu of promotions. “We need to customize [marketing] across the continuum of retailers, but it’s not realistic to sit down with every operator,” Gamgort says. Different product categories and classes of trade each need their own strategy.
Masterfoods’ chocolate sales have been mixed. Sales of box, bag or bar chocolate (over 3.5 oz.) rose 6% to nearly $390 million, but sales of smaller bars fell 3.4% to $246 million, and snack sizes fell nearly 9% to $207 million, per IRI data for 52 weeks ended March 19. Masterfoods trails behind Hershey Corp. in those three segments of the $4.4 billion chocolate category.
In non-chocolates, Masterfoods’ breath freshener sales fell 36% to just over $3 million, and hard candy sales dropped 44% to $2 million, according to tracking by IRI.
Retailers’ Power Wanes
Industry experts expect to see more CPGs play hardball with their trade dollars in the coming months, diverting funds to shopper-marketing programs to build brands at retail and persuading grocers that in-store promos will boost category sales. The shift will be prominent in categories with heavy new-product activity and highly differentiated items, such as yogurt and frozen meals, as well as candy. CPGs in commodity categories will have a tougher time pushing retailers to concede trade dollars.
But grocers have less power to push back: Squeezed by Wal-Mart’s low-price posture, supermarkets have a tougher time getting CPGs to support their traditional high-low pricing strategy.
“All these grocers have very limited clout, so if Masterfoods wants to slash 2% to 3% off its trade budget, as long as they have Wal-Mart’s O.K., what’s anyone else going to say about it?” says one trade relations expert.
That lays the foundation for CPGs to press on with shopper marketing. Most have already diverted as much as they’re willing to shift from ad budgets to in-store marketing. New funding will come from trade dollars and non-targeted promotional vehicles such as FSIs, as brands home in on capturing consumers at the shelf.
“We’ve heard loud and clear from CPGs that they aren’t cutting national advertising to fund in-store media. Their backs are against the wall,” the trade relations expert says. “The money will have to come from trade dollars and non-targeted promotions, which become increasingly vulnerable” to budget cuts.
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