How General Mills' Marketing Pays Off
Yes, Virginia, there are companies pumping up ad spending even as the economy remains stuck, stubbornly, in low gear. Judging from the results of one of them, more might want to try doing the same.
General Mills (GIS), the 81-year-old packaged food monolith, closed the books on a very good fiscal year on May 31. Revenues were up 8%, to $14.7 billion, and operating profit rose 4%. In its most recent quarter, the company spent 16% more on marketing than it did in '08. "In an environment where you have consumers going to the grocery store more often and thinking more about meals at home," says General Mills CEO Ken Powell, "we think that is a great environment for brand building, to remind consumers about our products."
General Mills purveys homey comforts—Cheerios, Wheaties, Progresso Soup, Hamburger Helper—and current times are nothing if not tailor-made for them. But the company doesn't just have the good fortune to own a portfolio concentrated in categories built for the times. In many cases, it's gaining market share in them. The company's "revenue growth has been along the lines of 9% to 10% in categories growing at 5%," says Robert B. Moskow, who tracks the company as an analyst at Credit Suisse Group (CS). "I attribute it to some breakthrough marketing ideas that have a lot of resonance with consumers."
There has always been something of an arms-race mentality to marketing. When you've got more resources to spend, you do so, whether to drain competitors' coffers or take advantage if their finances are under strain. This wrinkle may help explain why General Mills, in an early July call with investors, promised a high single-digit percentage increase in its marketing budget for its coming fiscal year. "Brands that continue to expand [and] give hope and optimism" during rough patches, says Chief Marketing Officer Mark Addicks, "historically do well."
Many big marketers are cutting back this year. Ad tracker TNS Media Intelligence finds that total measured ad spending for the first six months of '09 has dropped 14.4% compared with the first six months of 2008. But this is not how the companies that sell basic supermarket staples the American public purchases by the palletful are going about marketing in this recession. "Every food company I know has taken marketing [spending] up significantly this year," if not necessarily to the same degree as General Mills, says analyst Christopher Growe, who follows these businesses for financial firm Stifel Nicolaus (SF). What wins in such a marketplace, where all entrants keep increasing their bets? The answer is one commonly found among all massive companies that sell basic goods: intensive research that aims at wreathing a kind of grandiosity of purpose around everyday products to a degree that may seem somewhat silly to outsiders. The key question, Addicks says, is "What is the bigger job this brand does in a consumer's life?" This question is threaded through an exhaustive process—including videotaped interviews with key customers—that ultimately boils the marketing message of key brands down to simple story lines.
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Focusing on Addicks' question led, in one instance, to a tweaked positioning for the company's fruit-roll product, Fruit by the Foot. The ads now stress how the snack gives kids a chance, for lack of a more elegant phrase, to play with their food. Company research led Hamburger Helper to dust off a catchphrase last employed in the early '70s: "One Pound. One Pan. One Happy Family." (The product's sales growth has doubled recently, the company says, though it can certainly thank the overall economy for increased interest in the brand.) In some cases the findings have prompted General Mills to shift a spending strategy radically. The company concluded that key customers of the long-running, ultra-mainstream baking brand Betty Crocker were "information seekers," as General Mills Marketing Vice-President Anton Vincent puts it. Baking aficionados bounce around online looking for recipes and ideas, so General Mills shifted Betty Crocker's ad buys: This year more than half its total spending will go online. (Generally, around 20% of General Mills' ad budgets are spent online.) This shift, says Vincent, led to "a change in [the sales] growth trajectory" for Betty Crocker that, according to internal company metrics, outpaces the overall baking category's increases.
Simple stuff? Of course. But General Mills has long built evocative stories around simple products—refrigerated dough, breakfast cereal, flour—just like its competition. And anyway, this is exactly on point: Marketing is a business in which the best story that's most aggressively deployed wins. You can look at General Mills and see a company uniquely positioned to take advantage of an economic downturn. Or maybe you'd see the suggestion of something slightly counterintuitive: Perhaps now, more than ever, is when advertisers should spend more, not slash.