P&G keys on innovation, advertising efficiency as inflation drags on
The US consumer is "holding up well," said the CPG.
Photo by Brett Jordan on Unsplash
The US consumer is "holding up well," said the CPG.
In the push and pull between price increases from consumer goods companies and buying decisions from consumers, Procter & Gamble is finding that the balance is improving.
Volumes held up better than expected for the maker of Tide and Bounty in the quarter ended March 31, even as the company raised prices by 10%.
The company saw a 7% increase in organic sales from the same quarter of the prior year, while volumes fell 3%. It’s a sign that even as U.S. consumers buy fewer goods amid inflation, they aren’t completely changing habits, or turning away from name brands.
“The U.S. consumer, I think, is holding up well,” P&G CFO Andre Schulten told analysts Friday on the company’s earnings call.
With prices elevated due to inflation, consumers are using more items from their pantry before restocking and exercising more caution as they use replenishable staples like paper towels. But overall, “Any indication that we see on our business is that the consumer is still choosing P&G brands,” Schulten said.
The remarks will hold weight. P&G is a bellwether for the consumer economy, opening earnings season with the first look at the shopper mood from a major CPG for the quarter that started the year. While CEO Jon Moeller allowed that the economic picture could continue to be “a bit choppy,” the company is expressing a measure of optimism. It lifted its outlook to project organic sales growth of 6% for the year, as opposed to the previously-projected 4-5% increase.
To be sure, there are still challenges. As price increases continue with inflation still elevated, consumer goods executives are carefully monitoring whether consumers are opting for private label products over name brands. In the U.S., P&G executives said private label share is “stable,” with no movement in the past nine months.
However, that’s not the case in Europe, where P&G is observing more trading into private label, and posted wider volume declines of 7% in the recently-completed quarter.
Facing elevated costs, P&G is continuing to increase prices into the new quarter, having recently completed another round in the U.S. and Europe. As the company’s brands seek to continue to appeal to consumers who have the choice of a cheaper store brand, they are introducing new offerings in both products and packaging as they raise prices.
“We need to create product and packaging innovation, communication strategies and in-market executions that are able to provide value to consumers and retailers,” Schulten said of the company’s approach in Europe. “And that's what we're focused on. I don't think that trying to eliminate the price differential [with private label] is a meaningful and helpful strategy for us.”
The company is also putting extra energy into how it shows the value of its products.
“When we talk about Charmin Rollback because the product is more absorbent and has more strength, we explicitly talk about the ability for consumers to use less,” Schulten said of a recent toilet paper innovation.
With price increases continuing, consumers won’t return to their usual consumption habits right away. But executives are noting there’s room to continue to bounce back. Volumes have fallen at P&G for four straight quarters, but this quarter’s 3% decline was down from 6% in the December quarter. CEO Jon Moeller said to look for “volume to slowly improve over time, but it won't happen overnight.”
At a time of higher costs, the company has also moved into the mode of seeking to tighten operations. That includes the dollars it spends to advertise. CPG companies built up digital capabilities over the last decade, and saw spend increase with the rise of ecommerce in the pandemic. In this period, many are optimizing as they seek to continued profitability.
P&G is targeting more efficiency in media spend as it seeks to continue to reinvest in the business. Schulten said the company believes it can generate between $400 million and $500 million a year as it brings more capabilities inside P&G, and uses more digital tools to reach consumers.
“As ad spending becomes more efficient with our ability to in-house both scheduling and buying of media, more digital capability to be more targeted, that increases the ROI of every dollar we can spend. So, it actually makes investment in media spending more attractive.”
That can lead to reinvestment, both in more media, as well as product innovation. In the end, savings in one area can help boost the value proposition P&G communicates as it faces down the headwinds in the economy.
Upping marketing spend, growing loyalty members and multichannel sales are key to the beauty brand's strategy.
Digital commerce is helping e.l.f. Beauty pour fuel on the fire.
The brand continues to be one of the shining examples of the staying power of beauty products despite consumer pullback in other areas of discretionary spend. e.l.f. grew net sales 48% in the fiscal year ended March 31 as it reached $500 million in sales for the first time. For the most recent quarter, sales grew by a whopping 78%. The company is seeing profit gains as well, as adjusted EBITDA grew 56%.
With the top-line revenue flowing, the brand was opportunistic about how it invested in marketing in the most recent quarter. After upping spend to 33% of net sales in the quarter, the company ended up with marketing and digital investment at 22% of net sales for the year. That was well above the higher end of its 17% to 19% outlook. In the coming year, it expects 22% to 24%.
The fact that digital and marketing fall in the same category reflects the brand’s approach to marketing. It's a favorite among Gen Z, and has found a home on the social apps that are popular with the generation.
“Our disruptive digital-first marketing engine has built strength across multiple social platforms,” CEO Tarang Amin told analysts on the company’s earnings call. “We are a pioneer on TikTok and are now a four-time TikTok billionaire with our last hashtag challenge garnering nearly 15 billion views. We were the first major beauty company to launch a branded channel on Twitch and the first beauty brand on BeReal.”
As a sales category, digital penetration is now 17%, growing from 14% last year. The channel grew 75% in the most recent quarter.
Amin laid out three factors driving this trend:
Marketing. The marketing investment that e.l.f. made brought strong returns, and the digital-first nature of those ads are bringing people to the brand’s digital sales channels.
Loyalty. E.l.f.’s Beauty Squad loyalty program has 3.7 million members, which is a 25% year-over-year increase. Loyalty members are the biggest driver of the brand’s digital business, accounting for over 80% of sales on the brand’s DTC site.
Multichannel. e.l.f. is the only one of the top five mass cosmetics brands that has a DTC site, Amin said. It is also seeing strong growth at Amazon and other retailer ecommerce websites. The growing presence is “building upon itself,” Amin said.
With digital growth, the brand is seeking to expand capacity in the supply chain that will provide more efficiency and faster delivery, as well. It is shifting to a more distributed ecommerce fulfillment model. Previously, it had one automated warehouse in Columbus, Ohio, which meant shipping to the West Coast could take time. Now, it is moving to a multinode distribution network. With the first couple nodes up and running, there is already improvement in delivery times.
The brand is also adding distribution capacity to its main warehouse in Ontario, California.
As marketing helps more people discover and buy from the brand, the operational improvements will help create a customer experience that lives up to the hype.