BATAVIA, OHIO (AdAge.com) -- For years Colgate-Palmolive Co. defied odds as it held or gained share in the U.S. despite being massively outspent by bigger rivals, particularly Procter & Gamble Co. But in a growing number of categories -- including toothpaste, deodorant, body wash, dish soap and pet food -- Colgate has been losing share at an accelerating pace lately, fueling speculation that it will have to hike marketing spending dramatically next year.
Goldman Sachs analyst Andrew Sawyer, in fact, projected in a recent report that Colgate will need to boost ad spending by $150 million to $200 million next year. He advised investors to stay on the sidelines until the company "rebases" earnings projections to reflect the new spending.
So what's changed for Colgate? Two factors are working against it now. First, competitive advertising and promotion spending has jumped in almost all its categories. Even rivals who've been relatively light spenders themselves, such as GlaxoSmithKline and Beiersdorf, have sharply stepped up marketing.
And immigration to the U.S. from areas where Colgate had overwhelming market-share leadership, particularly Mexico and the rest of Latin America, has practically ground to a halt in recent years.
Globally, Colgate is still holding its own. But with organic sales growth of 3% last quarter, the company has gone from being at or near the top of its competitive set in top-line growth for years to falling behind P&G, Unilever, L'Oréal and Reckitt Benckiser, among others.
One consultant believes Colgate may need to continue stepped-up spending for at least five years to address years of under-supporting U.S. brands. "For years they got better ROI spending in Latin America vs. here," said Sanford C. Bernstein analyst Ali Dibadj. "Their operating margins in North America have gotten a lot better [but] they can no longer take for granted [that their brands can hold their ground in the U.S.] without them putting a whole lot more advertising in."
A spokeswoman for Colgate said the company doesn't comment on future spending plans and declined to comment. It works with Y&R, New York for general-market creative; Mediaedge:cia for media; Siboney USA for Hispanic; UniWorld for multicultural; 360i and VML on digital and Cohn & Wolfe for public relations.
Spending about 11% of sales this year on advertising, Colgate is at least in line with peers globally. But it piles more types of spending -- such as sales efforts with dentists -- into that accounting line than most others, according to an analysis of CPG advertising reporting practices by Sanford C. Bernstein. And analysts believe the company, which gets less than a third of its sales from the U.S., spends disproportionately overseas.
Colgate spent $165 million on U.S. measured media last year, according to Kantar Media, $93 million of it on toothpaste, $12 million on Softsoap and $11 million on Palmolive dish soap. But it was outspent by others in each category, often by several multiples.
For the second year in a row, Colgate is on the way to being the No. 3 spender in oral care behind not only P&G, which has often outspent Colgate two or three to one on Crest in recent years, but also an increasingly aggressive GSK, whose combined spending on Aquafresh and Sensodyne surpassed Colgate last year. While Colgate has largely held on to last year's gains in toothbrushes, it's been losing share this year in the much-bigger toothpaste category to P&G and GSK. Meanwhile, heavy spending this year by Unilever, P&G and Beiersdorf in body wash has meant numerous brands surpassing Colgate's outlay on Softsoap and Irish Spring, causing Colgate to give up gains made last year.
And in dish soap, P&G lowered prices and focused on value in ads for Dawn. That, combined with its strategy to extend the Gain brand into the category -- moves aimed at chipping away Palmolive's lead among Hispanics -- seems to have paid off. P&G knocked 3.4 points off Colgate's share of dish soap last quarter. Even before that, though, neither Latin America nor the U.S. Hispanic market provided the boost for Colgate they have in the past. (That's despite Colgate spending $17.7 million last year on Spanish-language TV, per Kantar, or about 11% of its measured media.)
Colgate gets about as much of its $12 billion in overall annual sales from Latin America as the U.S. Its shares of 80% or more in toothpaste and other categories in Mexico, particularly, have spilled over into this country for more than a decade thanks to rapid immigration and an outsized share among U.S. Hispanics.
P&G, however, has stepped up product launches and spending in key Latin American markets this year, especially in Mexico and Brazil. And the flow of immigrants to the U.S. (predominantly Colgate consumers) has slowed during the recession of the past two years. After peaking at 12.6% of the population in 2007, the proportion of foreign-born U.S. residents is expected to decline to 12.2% this year, according to data from the U.S. Census Bureau and University of Southern California.