CPG and E-Commerce Trends Relevant to Marketers During 4Q22 (Part 2)
Continuing with my analysis of issues relevant to packaged goods companies – arguably the most important category of advertisers given their intensity of spending and absolute size – several other large CPG companies reported fourth quarter earnings over the past few days. Results continued to show the same kind of robust results we saw from the first batch of companies that reported previously, with a fourth quarter that was similar to full year results (high single digit or double digit growth) and expectations that called for strong, if slightly slower expansion during 2023.
Nestle, the world’s largest packaged goods company, posted 8% organic revenue growth during the fourth quarter of 2022, essentially matching the full year figure. Guidance for 2023 calls for an organic gain of 6-8%. No specific data on advertising spending was provided, but a broad segment of expenses – marketing and administration – actually fell fairly significantly on a calendar year basis from 20% to 18% of total revenue. Importantly, Nestle has said in the past that it considers marketing spending (recorded as an expense) and trade support (not captured in financial results, as this activity is excluded before the company records revenue). Moreover, company management said at an investor conference last year “ we have a strategy to raise the (marketing and trade) investment because it is really driving growth” but that “we had to reduce a little bit our marketing spend exceptionally this year, much more as a consequence of the fact that we were short of products for some categories like pet care due to an increased demand.”
Meanwhile, Coca-Cola reported organic growth of 15% for the quarter and 16% for the year. Guidance for 2023 was provided at 7-8% organic growth for the year. For 2022, marketing spending was described as rising (full advertising expense data won’t be available until the 10-K is released). The company continues to focus on digital engagement with consumers, illustrating this activity by referencing World Cup-related experiences it developed around the world.
At Kraft Heinz, organic net sales growth was 10% on the quarter and the year with guidance for 2023 of 4-6%. On advertising, spending was shown to have fallen in 2022 to $945 million from $1.039 billion in 2021, a decline as a percentage of sales from 4.0% to 3.6%. However, the company was specific in conveying its intentions to grow advertising spending in 2023, stating “in 2023, as you might have noticed in guidance, we are expanding gross margin to go back to 2019 levels, which is allowing us to continue to increase the investment in the business for growth. So we are in 2023, increasing investments behind marketing, technology and people, which are critical enablers for us to fuel the growth of the company.”
Supporting expectations for solid growth among packaged goods companies during 2023, the US Census Bureau released numbers for US retail sales during January on Wednesday. On a year-over-year basis, total retail sales were up by 6.7%, or by 7.6% excluding motor vehicles. Most relevant to packaged goods companies, spending on food and beverage stores were up by 5.3% and spending at food services and drinking places was up by a remarkable 24.0% (recession? What recession?).
Finally, one other relevant set of data that came out this week was the Census Bureau’s e-commerce data for the fourth quarter of 2022. Most packaged goods companies have tended to talk about sales through this channel in more general terms lately, or provide hard data with less frequency so the Census data provides useful color. The new data shows e-commerce growth of 6.2% during the quarter, roughly in line with growth in total retail sales during the same period. E-commerce continues to account for 16.0% of all retail sales as it did in the year-ago quarter, although this is down from a 4Q20 peak of 16.6%. The vast majority of e-commerce sales for all categories are captured through retailers bucketed as non-store retailers (59% of all tracked e-commerce in the fourth quarter). This spending was up by 12.4% for the quarter, indicating share gains vs. e-commerce sales from the digital channels operated by other retailers. Total spending through these retailers amounted to $177 billion for the quarter and $603 billion for the year. For a point of reference, during 2022 Amazon posted $316 billion in revenue from its North American segment, up 13% year-over-year.
Among the pure-play retailers’ e-commerce sales, food and beverage retailers accounted for $7.9 billion in activity during the quarter and $29 billion for the year, with a quarterly gain of 5.8% (better than the full year result which was flat, given the difficult comparables in 2021). Health and personal care retailers posted $2.4 billion in sales during the quarter, down 1.2% year-over-year, and $7.3 billion during all of 2022. Whatever the pace of e-commerce sales, advertising spending by packaged goods companies on retail media channels will most likely outpace e-commerce growth given the ongoing establishment of new media offerings from these retailers.