Much of the Q&A session during the firm’s Q2 earnings call on Wednesday was devoted to the law of diminishing returns on trade spending and innovation that is not delivering, with Deutsche Bank analyst Eric Katzman wondering how large CPG firms could grow in a climate of “disappointing volume and more promotions”.
The bigger players are struggling to come up with appealing new products, and when they fail they fall back on promotional spending
He added: “It seems like the bigger players are just struggling to come up with good products that are appealing, and when those fail they go back to the easy method of just promoting more. So what … is the answer to such a tough situation? “
Gamgort responded: “There is a lot of discussion that I have seen about promotional efficiency or inefficiency and yeah, the more that the industry promotes the lower efficiency there is going to be. It’s almost a given… We’re looking at this industry right now as very much a zero sum game. We're not seeing growth in total.”
But he added: “We’re reluctantly having to match some of the promotion that’s out there. We have to be price competitive, otherwise we start losing market share and we know what happens in that situation. But we’ve been really, really focused on building internal capabilities about spending that money in a smarter way.
“If [they have] got to make this quarter over these next months, people are leaning on promotion very much because there is a delayed reaction to any marketing.”
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In the medium term, further consolidation will help drive efficiencies; while in the long term, stronger innovation will be key to growth, he said.