BATAVIA, Ohio (AdAge.com) -- Reckitt Benckiser -- or RB as it's re-branding itself -- had been virtually the only publicly traded package-goods player to maintain its advertising-to-sales ratio amid the recession. Now it's joining peers in plowing claimed savings from media rates into more promotion spending.
The company's results last quarter were good news for RB. Global sales, excluding the impact of currency and acquisitions, were up 8%, easily topping the lackluster results of players who've reported so far, including previous industry-beater Alberto-Culver Co., whose organic sales rose only 2%. RB's net income soared 31% as margins improved.
In North America, RB's sales rose 7% amid a flat market. Rob de Groot, U.S.-based exec VP of the region that includes North America, Australia and New Zealand, said in an interview that the company grew faster than private label across its categories as a whole, something he knows of no other major package-goods player doing now across its whole business.
Strayed from the playbook
How RB got there, however, strayed from the playbook of prior quarters. A company that was maintaining its ad-to-sales ratio while most competitors were cutting theirs joined the competitive set in citing efficiencies of lower cost of buying media as it cut media spending and hiked consumer and trade promotion.
Globally, RB's media spending fell 4%, 14% in constant currency, or 0.8 percentage points as a share of sales (roughly $32 million.) Gross ratings points and total media impressions were still up as RB benefited from lower media rates, including the U.S., said Mr. De Groot.
RB is getting better rates in TV's so-called scatter market than last year, he said, though it hasn't completed any "upfront" deals and he isn't sure it will. "We're trying to find a solution, but it will be a very different solution than last year," he said. "The whole principle of the upfront is a very strange U.S. principle. It might not actually be a bad idea if this were the end of [the upfront], but I'm not sure the [media] industry is ready for that." (The upfront is the period when the big TV networks typically sell 70% to 80% of their available inventory for the fall season, while scatter is inventory purchased on an as-need basis closer to air date.)
As long as it exists, RB will participate, he said, but didn't rule out shifting to scatter.
Havas' Euro RSCG handles RB creative, and sibling MPG handles media buying, though the latter account is part of a global review of the company's roughly $1.3 billion spending, including $476 million in U.S. measured media according to TNS Media Intelligence.
Keeping with overall strategy
"We have spent our money on other touchpoints with consumers [last quarter] which are either cheaper or they don't fall into the same financial line as marketing spending," Mr. De Groot said. "It's a slight change on the [profit and loss] line, but it's in line with our strategy of the past 10 years," which he said was to focus on innovation and the company's power brands.
Part of the media shift includes increased use of online video and print. "We're not reacting after one or two months of data" to the stepped-up use of online video ads, he said, though he said early results look favorable at least for some brands.
Promotion also is on the rise in part because competition, consumers and retailers are moving that way. Retailers, with an interest in preserving their own same-store sales numbers, are pushing for more as an alternative to lower list prices as both volume and commodity costs fall. Overall, unit volume was down across RB's categories 3% to 5% last quarter, Mr. De Groot said, and promotion is one way all players are looking to get it into positive territory again. "There's a reluctance to bring the prices back to where they were before on all sides," Mr. De Groot said. "That means you're trying to convince consumers in a different way."
Higher-priced initiatives launched earlier in the year are faring well, Mr. De Groot said, including Airwick's iMotion motion-activated air freshener, which helped RB increase sales and share in a discretionary category hard hit by recession, he said, and the company's new Finish Quantum laundry tabs.
Focus on premium products
As RB hikes promotional spending, it's focusing on such premium products (RB recently distributed an unusually rich $2.50 coupon for Quantum), but not lower-priced products such as aerosol fresheners or powder or gel dish detergents. The strategy, he said, is to prevent consumers from trading down, not encourage them, though he noted that not all competitors or categories are taking the same tack.
RB also is using a "big brands, big value" approach that generally means bigger or bonus packs -- a strategy he and analysts expect to become more commonplace in the months ahead as marketers deal back at least part of last year's price hikes, which generally came through package downsizing.
While RB increased guidance by a percentage point to 5%-6% organic sales growth for the full year, that still projects a substantial slowdown from the 8% growth in the first half. Mr. De Groot doesn't see consumers opening their pocketbooks much through the balance of this year, and increased promotion spending is likely to eat into the top line as well.
But he's expecting 2010 to be a bigger year for innovation at RB, after a 2009 he considers to be strong on that front, and he expects competitors to do likewise.