We find it fascinating how companies are engaging the consumer. Check out how Kellogg’s is doing it with digital media. The following are direct quotes from company executives from today’s earnings conference call.
Digital Media Advertising – “Engaging the Consumer”
We continue to invest heavily in brand building, as demonstrated by our 10% spending increase during the first quarter…As we have discussed, digital media is an important tool for increasing the effectiveness and efficiency of our ad spend. With an ever increasing number of ways to target our consumers through new media platforms, we can often spend less to reach the same and potentially larger audience. Our goal is to engage our consumers, forging stronger relationships with our brands whether through traditional television, print media or online programs such as Special K Resolution.
Let me give you three examples of how we engage consumers and bring our programs to life. An example of a recent integrated promotion is our Share Your Breakfast program, part of our ongoing effort to drive category growth. We are asking consumers to take a picture of their breakfast and post it on shareyourbreakfast.com. For every breakfast shared, we will donate one to a child in need, giving away 1 million breakfasts. We also celebrated National Breakfast Day on March 8 and served cereal to thousands of New Yorkers in Grand Central Station. During this week, we had the highest cereal consumption of the year.
Cheez-It is another great brand that benefits from strong consumer engagement programs. In February, we launched a campaign inviting consumers to help choose the next flavor of Cheez-It. Consumers purchased samples and then went online to vote for their favorite flavor. We had 29 million votes and nearly 1 million views on Facebook. Not only did we engage with the consumer during the voting process, we are now able to build brand loyalty through a digital connection going forward. We believe that we’re off to a solid start in 2011 and are well positioned to continue to build momentum throughout the remainder of the year.
Commodities and Margins
First of all, the first quarter performance, we did expect our gross margin to decline in the first quarter. Our cost pressures in the first quarter were very consistent with what we expect for the full year. So they were in the 7% to 8% range and that’s what we expect for the full year as well. So we don’t necessarily see a significant ramping up. The issue for us in the first quarter, obviously, was in our pricing was settling into the marketplace, and as a result, our gross margin, our performance was down…The supply of grains has been relatively limited, but the market grain is increasing, whether it be ethanol production or whether it be emerging market assumptions of grains or meat-based products. And the result of that is you’re going to see increased prices of grains over time. And so we would look at 2012 and say, yes, it’s probably going to be inflationary. How inflationary, we have to wait and see where all the supply demand shakes out when the prices shakeout.
Pricing Power and Elasticity
I think it’s very difficult to get what the real elasticity number is going to be. We have obviously a series of very complicated models to help us model out the elasticity, and we tend to give quite frankly a haircut of what those models tell us. If you try and get how much elasticity is out there, we’re not seeing very much to date. So the first quarter, we do have some price mix, we had, within U.S. Cereal our promoted price points were up 6% in the first quarter, and yet we continue to get good merchandising support and the business continued to do well. If you look, say, at another proxy around sensitivity to price, is private label doing well, were private labels down in share U.S. Cereal. It’s down on all the international markets. It’s moving up or down by 10, 20 basis points in some of the snack categories. So as we look at the consumer elasticity with certain expectation out there for the past 3 quarters of the year that as we sit coming through the first quarter, we’re not really seeing a whole lot of elasticity yet.
Emerging Markets
It’s always difficult to get into emerging markets and how much of the portfolio is there. So we look at Latin America and say obviously, all of that region for us is emerging markets. You take Asia Pacific and just take Australia out of that, and the rest of Asia Pacific would be an emerging market. It would come across to Europe and you come out the U.K. For us, Continental Europe is an emerging cereal category. It’s relatively for consumptions and has potential for long-term growth. So we don’t have a metric as such for emerging markets, but you can see 10% growth in sales and internal basis in Latin America in the first quarter. So signs of growth returning on Continental Europe. Double-digit growth in Russia. And if you took Australia out of Asia Pacific, it would’ve been a very good growth performance as well, with double-digit growth in India and South Africa, China in the quarter. (click here if charts are not observable)
