Masterfoods cuts brands & trade spending

Masterfoods says it is killing some of its "dog" brands, such as Aquadrops mints, cookie line Cookies & and bite-size Pop'ables candy. I guess they are dogs, I never heard of any of them.

They are also planning to cut trade spending, which they will switch into national advertising.

Mr. Gamgort said by cutting trade spending and what he called "the dogs in our portfolio" Masterfoods can afford a 20% increase in advertising for its brands as well as fund acquisitions. The first acquisition is expected to be announced in the next two weeks, he said. "If we were public, analysts would be applauding us."

Retailers are predictably unhappy:

Retailers, however, warn a cutback in promotional spending could hasten Masterfoods' rising share losses to rivals Hershey Co. and Nestle.

"Our Masterfoods candy business is down at least 20% from the $1.6 million we did with them last year because of their cutbacks in promotional spending," said one Northeast wholesale buyer, who noted that Hershey and Nestle are reaping the benefits.

Another East Coast retail buyer predicted a big sales tumble due to the cutbacks, which a Masterfoods executive told him were undertaken to drive profits. "You've got to spend money to make money," said the retail executive.

Masterfoods replies that the cuts are selective:

Mr. Gamgort responded that the company isn't cutting off its promotional spending for its more profit-driving customers. "We're being more selective about where we spend our money," he said.

I've long been an advocate of directing trade spending toward your most profitable accounts. My concern is whether Masterfoods will have the courage to stay with the plan when some big, but less-profitable, accounts begin cutting back their share of shelf space.

This might make an interesting case study in two or three years.