Magazine article Marketing

Mars Move Masks Nerves

Magazine article Marketing

Mars Move Masks Nerves

Article excerpt

Mars has merged Pedigree Petfoods with Master Foods in an efficiency drive designed to keep own-label brands from snapping too viciously at its heels, says Amanda Richards

If Mars was a plc, there is little doubt its share price would have had the jitters last week.

Not because the company's decision to merge its giant Pedigree Petfoods and Master Foods divisions across Europe doesn't make commercial sense, but because investors would want to know what had prompted the move and, on close inspection, they might find the analysis disturbing.

The aim of the merged company, expected to be called Master Brands, is to make both divisions more efficient and drive down costs.

As both operations use the same distribution system, deal with the same retailers and have products with similar shelf-lives, it is easy to see where Mars could achieve economies of scale.

Still room to lower costs

Whether these efficiencies could also be stretched to marketing is still under discussion. But there is definitely room to lower the cost base in other head-office departments, such as space management and ordering.

It is not the first time Mars has merged its different divisions. Similar amalgamations have also recently taken place in south-east Asia and Australia, where the company has gone a step further by creating one salesforce - dubbed 'the power of one' - to sell both its confectionery and petfood brands.

So what is prompting all this consolidation at the fmcg giant? There are many factors, the most pressing of which is Mars' venture into Eastern Europe.

Informed sources say that in the last year alone, the company pumped a phenomenal $250m into the region, an investment which has so far failed to generate a return. It is also committing a large number of top marketers to the project.

To sustain this kind of investment, Mars needs to be doing very profitable business in its home territories. But that is not as easy as it used to be.

In the UK, the low-inflation environment means it is difficult for manufacturers to pass on hikes in the cost of raw materials and packaging to consumers.

On a European basis, Mars is under fierce pressure from the onslaught of own-label, which is forcing it to dig deeper into its pockets for bigger advertising budgets.

And that is an expensive business. The price of media is increasing and, while a number of Mars' brands are yielding share, many still dominate their categories and require large ad spends to maintain their position. …

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