Mondelez holds off on promotions, price roll-backs despite retailer pressure as inflation remains high
Whole Foods Market at an investor event in December reportedly asked suppliers to lower their prices as costs allegedly begin to ebb, according to the Wall Street Journal. The publication also reported yesterday that the retailer will focus on promotions and increased sales events in 2023 to help alleviate financial pressure on consumers who increasingly are trading down or out of categories they can no longer easily afford.
When asked if Mondelez would heed this request and consider rolling back price increases or increasing promotions on the back of the current inflationary cycle, CEO Dirk Van de Put flatly answered no.
“We are not planning to increase our promotional pressure at all,” he said during the company’s fourth quarter earnings call last night.
He explained that while there is a lot of talk about diminishing inflation Mondelez has yet to see it and therefore continues to price accordingly.
“We are certainly not seeing, for 2023, our costs coming down. We still are seeing double-digit inflation in our cost” driven primarily by continued elevated costs in packaging, energy, ingredients and labor, he said.
In response, the company in December raised prices in the US and is negotiating price hikes in Europe. While execution of the US price increase was “excellent,” company executives said they expect some market share loss in Europe following the next round of increases given Mondelez’ primary competition comes from private labelers which have not yet increased their prices as much as branded companies.
Mondelez remains focused on rebuilding customer service, inventories
Increased promotions also are off the table because the company is focused on rebuilding its customer service levels and inventories with clients, which suffered in the US due in part to a strike in 2021 and subsequent overall supply chain volatility. If the company were to institute promotions, Van de Put said it runs the risk of not being able to keep up with increased demand and losing hard fought for customer service improvements.
Finally, he noted elasticities remain lower than expected and consumer spending on Mondelez products remains strong in most regions as they prioritize snacking and buy more despite significant price increases.
Van de Put added the company’s organic volume grew “2.7% for the year on pace with recent years, “demonstrating the continued strength of our resilient brands and categories even in an inflationary period.” This helped drive up organic net revenue 12.3% for the year, “significantly lapping the prior three years performance with broad-based growth across all regions,” and deliver gross profit dollar growth of $1.4bn.
“As long as volume continues to be this strong, we are not planning to increase our promotional pressures at all,” he said.
A ‘record year’ and strong forecast
Overall the company reported a “record year” with strong topline performance driven by price increases, continued volume strength and ongoing consumer loyalty.
For the forth quarter, net revenue increased 13.5%, driven by organic net revenue growth of 15.4% for the quarter was driven by a 1.6% increase in underlying volume/mix, according to the company. For the full year, net revenue increased 9.7% with organic net revenue up 12.3%, thanks in part to incremental sales from acquisitions of Clif Bar, Chipita and Ricolino.
Looking forward, the company expects organic net revenue growth of 5-7% in fiscal 2023 and high single-digit adjusted earnings per share growth.