Amid continued economic upheaval, the ad industry is paying close attention to brands intentions for their ad budgets. And while some will inevitably cut back on advertising as a cost cutting measure, there are still plenty of promising signs that many major brands will actually ramp up investment over the year ahead.
US confectionary giant The Hershey Company is among those who see ad investment as a lever for dealing with a tough economy. CEO Michele Buck revealed on the business’s quarterly earnings call that Hershey’s is planning to grow its advertising spend by “double digit” levels this year. Just under half of this extra spending is committed to its biggest brands, including Reese’s, Hershey’s, and Seasons. Growing areas for the company including gummy products, salty snacks, and healthier snacks will also see boosted ad spend.
Hershey’s overall ad spend was down in 2022, but Buck says that this was more due to supply chain issues than anything else. For Hershey’s brands where ad spend fell, there was a corresponding fall in consumer demand. But towards the end of the year, Hershey’s began to raise ad investment, with ad spend in Q4 up 3.3 percent year-on-year. And the company now says it has increased production capacity, and thus is planning a significant increase in ad spend to drive sales.
And CEO Michele Buck says she believes that current high levels of inflation make advertising more of a necessity. Hershey’s has increased its prices as its own production costs have gone up. But advertising helps maintain sales quantities, despite these higher prices for consumers.
“Over time, we know that advertising helps us build consumer connectivity, and we know that consumer connectivity is part of what helps us to have the elasticities [the ability to raise prices without proportionate drops in sales] that we do,” Buck told investors on the earnings call. “People are connected to our brands, and during tough times we know that that connectivity leads to them continuing to buy. So yes, it is important during an inflationary time, and we’ve done statistical analysis to validate that.”
But while Hershey’s ad spend is growing in the near term, and Buck says there’s room for further growth, she added that ad investment as a percentage of revenue is unlikely to ever return to pre-pandemic highs. The company has been focused on measuring which channels drive the highest return on investment, reinvesting in whichever channels create the highest incremental profitable growth. As a result, Buck says Hershey’s doesn’t need to spend as much as it has done in the past.
“We are always looking at the returns that we get on our spending, and making decisions as we go forward based on that.” she said. “We don’t think we have to go back up to the very highest levels that we were at historically, we’ve done a great job over time getting a lot of efficiency, getting very tight in our targeting so we’re getting even better returns.”