What you need to know:

• Latest big brand financials show major increases in ad spend, particularly in CPG: L’Oreal up 11 per cent, Unilever circa 10 per cent and Mondelez a whopping 21.6 per cent.
• Others including Gucci, Kellogg’s, Hershey, Ford, Allstate all increased spend above inflation – and all signalled intent to keep spending more on marketing, advertising and promotion into 2024.
• But former GroupM global business intelligence chief turned Madison and Wall founder Brian Wieser thinks most of those increases are going into short-term performance media. CEO and CFO statements could be interpreted to support that view. Most are laser focused on ROI with Unilever seeking rapid growth and L'Oreal deploying an ROI-based measurement and optimisation tool its CEO says is driving "spectacular productivity increases of up to 10-15 per cent”. It aims to roll it out across 60 per cent of spend globally by the year end.
• Which is why traditional brand building media companies – particularly linear TV – are seeing little if any of the upside. Marketers “don’t believe” claims from social and video platforms that their ad products can also build brand, per Wieser. But they are buying anyway from those performance players “because it helps them justify their existence for another year”,
• Hence the likes of Google, Meta and Amazon are seeing bumper ad growth, despite hacking back their own advertising and marketing spend.
• Wieser thinks there may be further pullback as Silicon Valley eyes Elon Musk’s interpretation of zero based budgeting. Which could prove painful for some parts of the media supply chain.
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The short and shorter of it?

Investor earnings calls in recent weeks with consumer goods, auto and insurance company CEOs and CFOs should have brand marketing advocates leaping for joy – most of them at L’Oreal, Mondelez, Diageo, Gucci, Clorox, Hershey, Unilever, Ford and more talked about investing in their advertising and promotion to drive growth now and for longer term impact.

At face value, the big rises in advertising and promotional budgets across the top end would seem to suggest CEOs and CFOs are buying into brand building – and a signal that the pendulum has swung firmly away from the cost cutting and zero-based budgeting approach that crunched some major CPGs last decade, mostly notably Kraft Heinz’s spectacular implosion under private equity giant 3G.

But Wieser’s not so sure that brand building in its traditional sense is underlying the double-digit budget increases. Which is why the once big beast of brand building, free to air linear TV, is seeing little in the way upside – and the walled garden majors are hoovering up yet more ad dollars.

“I would argue that while most marketers want to present that they are focused on their brand and building their brands, at a practical level, they are not. They are in fact focusing much more on performance-based advertising – defined any way they need to – to be able to demonstrate at least that to themselves, if not in reality, that they are driving something resembling performance,” says Wieser.

“So credible claims of performance that sellers of advertising can offer are more successful, I will argue, as ad products than those which attempt to provide a longer-time horizon based on brand-centric metrics. And that is one of the reasons why television is struggling. It's not about the fact that audiences might be eroding or cord cutting or, or any other factor,” he suggests.

Instead, it’s because the brands that used to be the big TV advertisers “have consistently and arguably more aggressively been shifting their budgets, away from media, which generally is supportive of brand building and more towards media, which is supportive of performance,” per Wieser.

He suggests advertisers “don’t believe” claims from social and video platforms that their ad products can also build brand. But they are buying all the same from those performance players “because it helps them justify their existence for another year”, says Wieser. “Brand builders really should care more [about actually building brand]. But it’s not actually what is happening.”

Which is why the big platforms all posted bumper revenue and profits – yet conversely are almost all cutting their own ad spend. That trend appears set to continue as CEOs and CFOs at some of the world’s largest advertisers suggest ROI is the watchword.

L’Oreal eyes AI ROI, Amazon, Douyin, TikTok power ecom

L’Oreal said advertising and promotion (A&P) spend for 2023 was up 11 per cent to €13.4bn, meaning the firm is spending the equivalent of almost a third of its €41.2bn total revenue on A&P. In 2024 it’s aiming to drive sharper results from its increased spend after notching, per CEO Nicolas Hieronimus, “spectacular productivity increases of up to 10-15 per cent” for L’Oreal brands that have deployed its propriety AI tool BetIQ to measure and improve the return. “This tool now is live in four of our critical markets, accelerating to more markets in '24 and should cover around 60 per cent of our A&P at the end of this year.” Hieronimus told analysts he is “really impressed by the results that we see in our A&P optimisation tool, which is just being rolled out in one category in a few countries today, but we want to roll it out fast, because it shows really very significant ROI improvements.”

Meanwhile, the firm indicated it could push more products into Amazon – if the platform keeps its end of the bargain. Cyril Chapuy, President at L’Oreal’s Luxe division, said results in the US so far have been material: “73 per cent of the consumers who bought on Amazon were new to the Lancome brand,” he told analysts. “Amazon helped a lot in Lancome increasing its penetration across the US territory, first,” he added, in a hint that the partnership may expand into other geographies after a long holdout period.

“We decided to go on Amazon because the quality of the dialogue we had with them has evolved drastically. It took us almost three years of discussion to go on Amazon.”

Chapuy said the push into ecom marketplace has not come at the expense of Lancome’s own D2C channels. “The direct site has kept growing at the same time as we moved on Amazon … what you do on Amazon and what you do on your D2C has to be very differentiated, very strategised so that the two channels don’t overlap or cannibalise each other,” said Chapuy.

“The brand is the number six luxury beauty brand on Amazon in just eight months. It’s number two in total luxury market in the US, so we have still a lot of room to grow. And obviously, if we keep being satisfied with this partnership, we’ll probably expand the distribution on Amazon on a few other brands of L’Oreal Luxe.”

Overall the firm’s ecom revenues grew 9.5 per cent “slightly lower than the total of the group” to make up 27 per cent of total sales, per Hieronimus. He cited a “less dynamic” Tmall as a factor in slower ecom growth but said Douyin and TikTok shop “has really developed a lot, both in China, of course, but also in Southeast Asia and is beginning [to] in the USA”.

Diageo blending long and short, hunting ROI

After increasing marketing spend four per cent to $1.95bn in the second half of 2023, Diageo affirmed its commitment to brand building beyond the short-term. But it too is hunting sharper ROI in short-term channels that can demonstrate they can deliver it.

Last year former CEO Ivan Menezes told analysts on its Q2 earnings call that “Our marketing is not just to make the second half sales number, it is about the next three years. So [like] everything in our business, upweights in marketing are not for short-term return alone. You do get some short-term impact, but the bulk of the impact really comes down the road … We really want to ensure we're setting ourselves up well for the quality of growth through the medium term, but it's going against very specific brand opportunities where we have a high degree of confidence in the return that we will get for this investment.”

On last month’s second half earnings call, CFO Lavanya Chandrashekar pointed to increased marketing investment to support the global rollout of its tequila portfolio as evidence of “investing for the long-term” as it builds out a new category.

But he reiterated the need for simultaneous quick hits and best bang for buck.

“We invested in Johnnie Walker in Europe, which has grown double digit; and we invested in India … and we've invested in Chinese white spirits.  And so what does this tell you about how we approach A&P investment? Is that we invest where we see the best ROI possibility,” said Chandrashekar. “We are extremely disciplined about it. And where there is an opportunity for us to grow the business, both for the long term, but also more immediately, and we see good returns, that's where we will make the investments.”

Mondelez’s “unprecedented” ad spend hike, more to come

Mondelez – which posted record profits – increased advertising and commercial spend by 21.6 per cent on an organic basis, a hike CFO Luca Zaramella described as “unprecedented”.

CEO Dirk Van de Put indicated Mondelez will continue to spend heavily on what it calls A&C in 2024 with “substantial reinvestment to drive continued growth in the year ahead.” Zaramella suggested, however, that it will be at a lower growth rate. “We are not going to have, I have to say, 20 per cent A&C increase another year. But it will be most likely high single digit or double digits. So we will continue investing across all the regions, across all the brands.”

At the end of 2023, total advertising and consumer promotions spend stood north of $3bn, equating to nearly 9 per cent of Mondelez’s $36bn total revenues. Conventional advertising representing the bulk of this figure per Madison & Wall’s Wieser, because snack foods – “the kind of goods you buy on a whim” – need that kind of constant paid media promotion.

Unilever seeks quick hits from 30 biggest brands

Unilever also boosted what it calls brand and marketing investment by double digits over the last 12 months. In 2023 it stood at 14.3 per cent of turnover, up from 13 per cent the prior year. Historically, Madison and Wall’s Wieser says about a third of the marketing envelope is on advertising, though Unilever doesn’t break out where that spend is being placed geographically or by channel.

While focused more upstream than advertising, CFO Fernando Fernandez said increased brand investment “is a fundamental reason behind the acceleration of volume growth in the second half”, suggesting a focus on more immediate returns. CEO Hein Schumacher underlined that ambition.

“The plan starts with the need to deliver faster growth. And we believe that we have the brands to do exactly that, specifically, 30 of them on which we’ll focus first, our 'power brands'. These are already proven drivers of growth. Last year, they were up 8.6 per cent representing 90 per cent of our total growth and 75 per cent of group turnover, growing strongly and gross margin-accretive,” said Schumacher.

“The vast majority of brand and marketing investment is going behind these 30 power brands and that will continue.”

Brands ditch zero based budgeting, tech picks it up

Regardless of the intended timelines of marketing investment ROI – short, medium, long – Wieser sees an unmistakable trend: a continued move away from the “over zealous” cost-cutting and zero-based budgeting that led Kraft Heinz to “basically blow up” in 2019 after its acquisition by 3G.

“Because in their hearts of hearts, the CEO and CFO level they know they need to build brands, they know they need to spend money on advertising, to sustain growth, that they can't be constantly cutting, or they are going to harvest their businesses into oblivion,” per Wieser. 

Moreover, they are signalling that intent and acknowledgement to the market.

“Whether it's for performance-based advertising on a short-term basis, or brand-building a long term basis, put that aside … The basic belief at the tops of these companies is that you invest in advertising and marketing if you want to support long-term growth. And so they want to communicate that as much as they can to investors. And that's where you tend to see companies talking about this.”

Hence there’s a certain degree of irony that the big platforms now benefitting from increased marketing investment are now dabbling with something like zero-based budgeting, AKA move fast and cut things.

Some of the “rightsizing” at Meta, Wieser suggests, is a result of “investor distaste at over-investment in something like the Metaverse and other things that weren't going to be reality anytime soon”. But across the board, big tech is eyeing Elon Musk’s slash and burn at X. While expecting the platform to fail after cutting out 80 per cent of the business, some are wondering “But what if you [only] cut by 40 per cent, maybe you actually keep the lights on for, like, forever?” says Wieser.

“’Maybe we don't think Elon is going to succeed, and we don't really want to mirror what he's doing exactly. But he might be on to something’,” is his theory.

“So what I think has happened is that most companies that are Silicon Valley-based have embraced something that we would otherwise recognise as zero based budgeting. They're basically looking with somewhat fresh eyes and saying, ‘Well, wait, what if we didn't do that? What would happen?’ And asking that question more aggressively than they did in the past.”

That could have implications for media agencies increasingly dependent on tech spend – which Wieser has previously broken down at a group level. Either way, he sees two of the major holdcos pulling ahead of the pack, at least in terms of profitability, due in no small part to their trading models. But that’s all to unpack in next week’s podcast.

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