DEERFIELD, ILL. — Mondelēz International, Inc. believes a four-pronged strategy put in place to turn the tide in its ailing gum business is beginning to gain traction, despite a mid- to high-teens decline in gum sales in developed markets during the second quarter of fiscal 2013.
Irene Rosenfeld, chairman and chief executive officer of Mondelēz, identified the four initiatives in an Aug. 7 conference call with analysts as better price size architecture, stronger marketing campaigns focused on fresh breath and oral care, more impactful displays, and getting the right product assortment and shelf.
Although sales declined in developed markets during the quarter, Ms. Rosenfeld said gum shares increased in the United States during the second quarter for the first time in a couple of years, and also grew in most of the company’s European markets as the initiatives were implemented.
“Despite the share recovery, revenue lagged somewhat, due to the short-term impact on inventory as our customers reset their shelves,” she said. “This should correct itself as the year progresses.”
In the question-and-answers portion of the conference call Ms. Rosenfeld was pressed on whether what really is ailing the gum business is a spending or marketing investment problem. She said that while “we felt there was a spending problem” when the company acquired Cadbury P.L.C. in 2010, that is no longer the case.
“There’s no question that Cadbury in the final moments had pulled back quite extensively on marketing support for gum and had very aggressively priced the category, and that was part of the reason that we started to see some weakness fairly early on,” she said. “We corrected that very early on. So that’s why I feel quite comfortable with the level of spending.”
Instead, she said, the issue for Mondelēz has been making sure the company has the right marketing mix within its spending.
“I think the issues that we’ve talked about, there’s really four that we’ve been focused on,” she said. “It’s been about pricing and sizing, both at the lower end and the upper end, particularly in markets like Southern Europe, where the economies are still quite challenged. And we are finding that we’re getting very good consumer takeaway as we do a better job of covering the spectrum of price points within gum. So that’s been a very important part of our fixing program.
“The second is, as I said, some of our marketing spending, we were not feeling was as effective as possible. Some of the campaigns had gotten a little bit too esoteric, and we brought them back to the fundamental category benefits of breath freshening, as well as oral care, and we’re finding we’re getting a good response to that.
“The third is more impactful displays. We have a number of examples around the world. Argentina is probably our best example, where we have displays that are increasing takeaway by 30%, 40%, and we’ve more broadly implemented those displays in a number of our key gum markets.
“And then last, which is probably the most significant, is the category over time got very heavily dependent on innovation, to the point where a lot of the base s.k.u.s (stock-keeping units) were being replaced by some of the innovation and we were participants in this. But it turns out that some of those innovations were not carrying their weight. And so it has taken us some time to manage the category, to get our customers to change their shelf sets. And as I mentioned, part of the reason there is a lag between our share performance and the revenue growth is simply because it takes a while for our customers to make these shelf set changes. But really, those are the four areas that we’ve been focused on and we are beginning to see some good traction in our key gum markets, particularly in the U.S. and in Europe.”
In contrast to its struggles in developed markets, Ms. Rosenfeld said gum sales in emerging markets were up mid-single digits in the first half of fiscal 2013, led by the successful launch of Stride in China.