Kellogg's Goal in '09: More Ads for Its Money

Company Intends to Keep Spending to Fend Off Private-Label Brands

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CHICAGO (AdAge.com) -- Kellogg plans to up its ad presence in 2009 by spending more cannily and snapping up media buys at bargain prices.

Kellogg said it plans increase 2009 ad outlays in step with sales, keeping spending at about 8% of the total.
Kellogg said it plans increase 2009 ad outlays in step with sales, keeping spending at about 8% of the total. Credit: Kellogg Co.
As consumers search for more value and cheaper products, Kellogg's strategy is to create demand for its brands and fend off lower-priced private-label alternatives. "The current conditions are truly unique, but we will drive the business to overcome these challenges," CEO David MacKay said. "We'll continue to invest in exciting innovations, strong advertising and upfront cost initiatives, as well as aggressive cost-saving programs across the business."

The company said it plans increase 2009 ad outlays in step with sales, keeping spending at about 8% of the total. But Kellogg increased ad spending just 1% in 2008, to $1.1 billion, while sales for the year grew 9% to nearly $13 billion. It's an admittedly tough comparison for Kellogg, which boosted spending 26% in 2007. Mr. MacKay had warned that 2008 increases wouldn't match those of the previous year.

Looking for 'efficiencies'
During the second half of last year, Kellogg preached return on investment, more dollars for digital and bundling brands for TV commercials. Chief Financial Officer John Bryant said the company began to see benefits from those efforts but did not detail them. He said the company will continue to look for "efficiencies" across its budget and throughout its brand portfolio. Kellogg plans to save money on cheaper media in 2009.

"If media deflation increases, we may see less growth in advertising spending, despite more impressions," Mr. Bryant said. "We believe that the combination of improved efficiency and media deflation will drive even more impressions."

Credit Suisse analyst Robert Moskow noted the cereal maker's fourth-quarter share losses to rival manufacturer General Mills, and said he wondered if Kellogg's ad-efficiency push had hampered sales. The company also had to answer investors' questions about private-label performance. Mr. MacKay admitted that private-label is growing in the U.S., in part because retailers are promoting their own house brands. Still, he said, private-label brands control only about 10% of the business in the cereal category.

"We think Kellogg still deserves high marks for the strong management team and the high quality stream of earnings," Mr. Moskow said, adding that he was heartened by the company's plans to increase marketing support. "Management sounds realistic in its outlook for the world and very focused on addressing what it can control (increasing cost efficiency, maintaining marketing investments, introducing better innovation and managing the business for cash flow)."

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