Is gum coming unstuck? Mondelez CEO reports recovery signs
In its second quarter (Q2) results released yesterday, Mondelez reported sales growth for its two largest categories - chocolate (6%) and biscuits (8%) - however its gum & candy segment was down 2% after consecutive quarters of decline.
The candy sub-set grew modestly meaning that gum was again the culprit.
Share gains in US
Mondelez CEO Irene Rosenfeld said: “Although gum remains a challenge, we’re seeing some encouraging signs of share recovery.”
Mondelez grew its gum market share in the US for the first time in a couple of years by gaining four-tenths of a point in Q2 and a full point in the last four weeks of the quarter. It also made share gains in many European markets.
Four initiatives for gum
Mondelez’s gum sales in developed markets were down mid to high teens, but it did enjoy some growth in emerging markets, mainly due to the recent launch of Stride in China.
“We’re beginning to get some traction from the four initiatives that we’ve been executing,” said Rosenfeld.
Mondelez’s four-pronged strategy involves getting the right price and size balance, marketing fresh breath and oral care, having more impactful displays and getting the right product assortment on shelf.
Pricing, oral care, and product mix
During the company’s conference call yesterday, Rosenfeld gave her thoughts on the cause of gum’s downfall.
“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.”
She added that the company’s marketing campaigns had become “esoteric” and would now focus on the benefits of breath-freshening and oral care.
“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 SKUs were being replaced by some of the innovation and we were participants in this,” continued Rosenfeld.
She added that Cadbury had cut back on gum marketing spend shortly before Kraft Foods acquired the business, which set gum on its downward trajectory.
Mondelez reported a 7.7% fall in operating income to $900m in Q2. It attributed the decline to expansion in Asia Pacific and increased advertising spend in the EEMEA region.
Net revenues were up 0.8% to $8.6bn.
The company has forecast 2013 organic net revenue growth “at the low-end” of between 5 and 7%. It also reaffirmed its 2013 adjusted earnings per share outlook of $1.55 to $1.608.