Mondelēz counters snacking softness in US with lower-priced packs, promos & increased distribution in value channels
During the company’s second quarter earnings call on Tuesday, CEO Dirk Van de Put and CFO Luca Zaramella reported a 2.2 percentage point drop in volume in the quarter, during which prices rose 4.7 percentage points, causing quarterly sales to come in under Wall Street analysts’ expectations at $8.3 billion.
Higher prices helped buoy Mondelēz’s adjusted profits, which came in at 86 cents per share – higher than the expected 79 cents. Still, the company’s net revenue of $8.34 billion for the quarter ending June 30 was below analysts' expectations of $8.45 billion.
Snacking ‘remains relatively durable’ despite softness in the US
While “snacking remains relatively durable,” Van de Put acknowledged ongoing softness in parts of the US biscuit portfolio and that some consumers are shifting where they shop and what they buy to better manage their budgets.
He explained in the US there are three key dynamics at play.
“First of all, the category remains soft but it is stabilizing. And I would say the consumer is experiencing a tension because they see the overall inflationary picture. They see the food prices have increased, and they have a feeling of less purchasing power. At the same time, particularly as they see grocery prices stabilizing and their wages being up about 4% while grocery prices are up 1%, they are starting to have bigger confidence than the same period last year – although these high prices remain a concern for them,” he said.
“The second thing about the consumer is they have changed where they shop. So, the biscuit category is seeing the largest growth in chains like Value Club at Walmart, while in grocery we are seeing share decline,” he added.
Finally, he said, consumers’ definition of value is changing.
“Two, three years back, it was all about the price per pack or, in fact, the unit price per cookie, and people were drifting more towards family and party sized packs and that benefited us. Now, particularly lower income consumers, they have moved to a basket size that they can afford and if the biscuit brand that they like can fit in there at the right price point, they will buy it. If not, they will not buy any biscuits,” he said. “So, these days we have to be much more aware at which price point we offer a pack.”
A three-prong plan to rebuild volume, market share
As such, Van de Put said, Mondelēz will launch a range of new smaller packs in the $3 to $4 range to drive continued brand loyalty and value for Oreo, Chips Ahoy! and Ritz.
“Additionally, we are continuing to launch compelling activations,” such as the recently launched Star Wars Oreo packaging and Oreo Space Dunk, “to delight our fans while driving incremental lift,” Van de Put said. He added the company will explore more displays.
He said the company also will implement “targeted promotions” with a “little bit more price on brands like Chips Ahoy!, which is probably most affected by the … hesitation from the lower income consumers.”
The third prong in Mondelēz’s recovery strategy is to increase distribution points across food, club and convenience stores, he said.
While still early days, Van de Put said the company is “already seeing benefits” for this strategy.
He explained: “Chips Ahoy! is recuperating quite nicely. Oreo and Ritz are increasing their market share. … All that together gives us the confidence that we will see a good second half in North America.”
As such, and in combination with growth around the globe, Mondelēz still expects organic net revenue growth in the upper end of its previously stated 3% to 5% for the full year.
