Kellogg’s increasing advertising budget worries investors
BOCA RATON, Fla. The Kellogg Co.’s marketing budget has increased to over $1 billion, a 30 percent increase in the last five years, and the company is finding it hard to muster up excitement from its investors.
The $250 million increase in marketing spending is another example of the company’s strategy to heavily advertise the brand in response to increasing commodity costs that have forced it to raise prices on its brands. Other brands that have followed suit are Kraft, General Mills, Campbell Soup Co. and Sara Lee, which all increased marketing and advertising spending last year.
Chief executive officer David Mackay spoke of the importance of the decision to increase ad spending by trying to appeal to the Analyst Group of New York last week: “We believe this really helps us as we look at a more volatile environment,” he said. “We believe continued investment in our brands increases our dependability as a company.”
In order to get investors to understand and comply, Kellogg’s strategy was to explain that the increase in marketing spending will also involve the company taking a closer look at how everything is run to ensure that there will be a profitable return. Not only will the company be taking a “closer look,” but Mr. Mackay also states that it is looking to cut costs, and look at its media practices around the globe to increase its level of efficiency, among other things.
Mr. Mackay’s vow of efficiency and a plan of having advertising with the lowest rate of return and redirect them within the company’s needs is drawing further concern from analysts.
“Mentioning that they’re looking more closely at effectiveness of ROI in advertising makes investors wonder if they are reaching frontiers of ROI,” said David Palmer, an analyst with UBS. “In other words, at some point, increases in advertising on the existing portfolio may not yield the best return.”
Hershey’s new center creates jobs in Utah
OGDEN, Utah The Hershey Co. has decided to build a distribution center in Ogden, Utah, creating about 125 full time-jobs.
According to published reports, Hershey is said to have earned $5 billion in revenue last year and employs a total of 13,000 people worldwide.
Hershey was given a financial incentive from Utah of about $2.6 million, and the company plans to invest about $39 million in the center. Construction is set to start in the spring.
Muhtar Kent nominated as president of Coca-Cola Co. board of directors
ATLANTA The Coca-Cola Co. board of directors has announced Muhtar Kent as their nominee as Director of the company for election at the Annual Meeting of Shareowners in April 2008.
Kent, who is president and chief operating officer of Coca-Cola, will also accept his post as chief executive officer of the company on July 1, 2008. He has been working for the Coca-Cola Co. since 1978, and held the position of president of the East Central European division from 1989 to 1995.
In May of 1995, Kent was named president of the North Asia, Eurasia and Middle East Group. His role as president and chief operating officer of Coca-Cola International in December 2006 led to his newly appointed post for the year 2008.
“It is a logical and natural step for Muhtar to be nominated to the Board of Directors at this time as part of our orderly transition to new leadership that we announced in December,” said chairman and chief executive officer Neville Isdell of Kent’s nomination. “It will give Muhtar several months to acclimate himself with his new duties as director in advance of becoming chief executive officer in July. The entire board looks forward to working with Muhtar as both a director and our new chief executive officer.”