2023-09-06 21:14:10 ET
The Clorox Company (CLX)
Barclays Global Consumer Staples Conference Call
September 06, 2023 03:45 PM ET
Company Participants
Linda Rendle - Chief Executive Officer
Kevin Jacobsen - Executive Vice President and Chief Financial Officer
Conference Call Participants
Lauren Lieberman - Barclays Bank PLC
Presentation
Question-and-Answer Session
Q - Lauren Lieberman
Really excited to have Clorox with us again this year. We have the company's CEO, Linda Rendle; and CFO, Kevin Jacobsen, with us. [Technical Difficulty] Again, thanks so much for being here.
To start is just on volume growth. Volume has been kind of at the forefront of the conversation at the conference for all the companies that are here. And for you guys, in particular, right, when will it [indiscernible] right, fourth quarter much better than expected, still down only 2%. But there were a couple of things that maybe were – I don't have one-time, but timing from some benefits of improved deployment and so on. So just, I guess, maybe we can start with how should we think about your volume growth trending from here? Can we start to see growth, I mean, as soon as the first quarter, you've got easier comps or does this kind of some of that sell-in dynamics that benefited last quarter making so efficient [indiscernible] kind of wait a little bit and think forward?
Linda Rendle
Excellent. And if you permit me, I'm just going to say a few comments and then get to that question I think is related to. Hope you were happy to see in fiscal year 2023, our performance based off of delivering against our priorities of maintaining topline momentum, rebuilding margin and continuing to invest in the long-term. So we delivered 4% sales growth, 6% organic, grew margins by 360 basis points and grew earnings by 24%. And I know we're going to get into 2024 in our assumptions and volume. But as we look out, we continue to see a stressed consumer more in aggregate. Our categories have been resilient, but my comments will be consistent with what we're seeing from a consumer perspective.
And then just one note, we have provided guidance on August 2 at our call. And of course, we had a set of assumptions around that. And I just wanted to be clear that what is not contemplated in that is that we announced on August 14 through an 8-K that we had a cybersecurity incident and that was not factored in. Obviously, it happened afterwards. We don't know if there's a material impact yet, and we don't have an update on our financials, but I wanted to make sure that was clear before we got started.
Good. So more on volume, which is important to how we think about 2024. Certainly, in Q4 of fiscal year 2023, we saw improved volume performance, as you noted. And we're down less as we started to lap before price increases we took over the last 18 months. And what we would expect in fiscal year 2024 as we continue to finalize something that which will happen at the end of this calendar year, that volume will play a more significant role in our topline performance moving forward.
I wouldn't say that it will be linear. And given there's more visibility, and we're assuming a recession, a mild recession in the back half of our year, looking at that and saying that will be a straight line is not what I would commit to you now. But we do believe volume and is already continuing to pay a strong role [indiscernible] and we believe we have the right plans investing in our brands and their superior value. We're investing more in advertising and sales promotion this year. We always invest strongly at about 10% of sales. But this year, we decided to spend 11 and as well as we have strong innovation plans that will support that return to volume growth as consumers begin more normalized behavior as we lap pricing. So again, volume will play a stronger role. It won't be exactly linear this year, but we believe we have the right plans in place to continue to expect that moving forward.
Lauren Lieberman
Okay. Great. And in that day on the August call, you mentioned innovation, right, and more important than ever driving volumes and particularly given the assumptions you're making around the consumer environment. So what's interesting is your R&D as a percentage of sales has actually been down over the last 10 years pretty consistently year-over-year. Rather there's been so much pricing in the numbers more recently. So I'm sure if we looked at it relative to volume, it's probably a different conversation. So I'm just curious, is R&D an area you think requires or warrant maybe additional spending as innovation grows in importance? Or do you think the sort of R&D machine is properly funded as it stands today?
Linda Rendle
And maybe I'll fill my comments in broader in terms of how we're thinking about investment broadly in our company. And we believe we have made the right set of investments to ensure the long-term value creation for our company and for our brands. And if you look across all of the buckets, that would be in things like advertising and sales promotion, where we're spending strongly and we lead and share a voice in our categories, whether that be in ensuring that we have the right infrastructure from a technology perspective, we're investing $500 million in our digital transformation.
And then R&D is no exception. We are one of the leading spenders among our peer group, and we continue to be. And so we feel very good about the R&D that we have in place to deliver incremental value from innovation, which is critical to our 3% to 5% sales growth number. And although that number has ranged flat in terms of absolute spending, our business is significantly bigger and we're able to drive the right efficiencies, but that's an area we continue to be moving in our industry and as an example of the broad set of investments we're making to ensure the long-term health of our business.
Lauren Lieberman
Okay. Could you maybe talk about within that, how many of your approach to innovation has changed? Or what it means to go after kind of bigger, stickier ideas? And is the process at R&D process is different today than it was five years ago or pre-IGNITE?
Linda Rendle
It is different. And we have been building better innovation processes long before IGNITE as well, and we're very focused then on ensuring that we are closer to the consumer that we were shortening the window that it took to innovate. So those windows can be pretty long innovation cycle. So pre-IGNITE, we're really focused on shortening that window. And as we headed into this new period that we wanted to ensure was taking the learnings that we had from the previous period and applying them. And the biggest learning we had was that when we could launch innovations and consumer needs spaces that we could invest in for multiple years. We call a bigger stickier innovation.
Then that was a better return for us, and we had more contribution from a topline perspective, and that's what we're focused on doing now. For each one of our categories, we want to have platforms that we can invest in for multiple years, and that incents retailers because they know that innovation is going to be around for a while. We can continue to put fresh items on the shelf for the consumer and give them new news. And it makes that R&D spend even more efficient, which helps us drive the number that you spoke about a lot. So that's what we're focused on now. Good examples of that would be glad where we've had many years of innovation come out of technology platforms that we've invested in. It's allowed us to build a better trash bag with less plastic with a better sustainability profile.
We've been able to add great scent and colors. For those of you who are into Barbie right now with pink trash bag, and it's relating to that. I know a lot of guys in the room are like, oh my goodness, more Barbie. But a pink trash bag is pretty cool right now. So that's a good example of something that a technology platform allows us to do something over and over again at scale and get good return on the capital that we put in the floor in order to do that. And we have that across a number of our brands right now. And we launched major innovations in every one of our major brands last year, and we would intend to do the same this year.
Lauren Lieberman
Okay, great. Okay. Other key focus area of course has been gross margin recovery. So big chunky start on that front to say the least. But could you maybe Kevin, talk a bit about the key inputs dictate the pace of recovery as we look through 2024 and even beyond, right, because this year cost savings – sorry, excuse me – fiscal 2023 – sorry – cost savings and pricing really drove the bulk of it. So just curious looking at raw materials, does it become a tailwind at some point to building block?
Kevin Jacobsen
Thanks, Lauren. And for a little bit of context, for the folks who don't follow us as closely, we've seen significant cost inflation over the last several years. If you think about Clorox, a typical year of inflation would be around $75 million for the supply chain inflation. Two years ago, we experienced $800 million of supply chain inflation. Last year, $400 million, and now this year about $200 million is what projecting in our fiscal year 2024. So a moderating inflation environment, but still inflationary. And then Lauren, to your good point, our commitment is to rebuild gross margins back to pre-pandemic levels. We've lost about 800 basis points through this inflationary cycle.
Over the last 18 months, we've leaned in very aggressively on pricing. We've taken four rounds of pricing broadly across our portfolio. We've seen large double-digit increases, and that was a key contributor to helping us build back margin. But the other two areas we're focusing on is cost savings. We have a very well established cost savings program that Clorox has delivered value for decades, and that continues to deliver very good value for us.
And then supply chain optimization. During the pandemic, we built up tens of millions of dollars in our supply chain as we're building resiliency and to manage through all disruptions. And we got the opportunity to pull that out. And so last year, we made very good progress. We recovered about 360 basis points of that 800 basis points we lost. Pricing was the biggest level we pulled. And then cost savings and supply chain optimization. As we move forward, and particularly this year, we don't have in our plan and assumption of broad-based pricing. And so you'll see less benefit from pricing, but we'll continue to drive cost savings, we'll continue to drive our supply chain optimization, and we think in spite of ongoing inflation, we can continue to make progress growing gross margin.
And then I think, well, as you look past this is to your question about longer term. We have bought these commodities for decades and they are cyclical and we expect at some point they will roll over and we'll see some level of deflationary support. We don't expect that this year, but we would expect that as we go forward at some point. And that'll certainly contribute to margin rebuilding.
Lauren Lieberman
Okay. Great. So since we're talking about long-term margins or the longer-term margins, I want to ask a question about ESG, which normally does it – the end of these conversations. But I think it's interesting to maybe contextualize some of the efforts that you guys have been making on ESG and how it may impact the P&L? So yes, maybe could you talk a little bit how ESG efforts impact the P&L? Let's just be broad with this.
Linda Rendle
Sure. I'm glad you asked it in the middle. ESG is very important to us. Not only is it consistent with the purpose we have as a company to champion people to be well inside every single day, but it's a key way we manage risk. As you look at what's going on with waste, what's going on with our planet, it's critical that we take steps to ensure the health of our business and part of what we need to do is address the sustainability thing, so we've set aggressive goals.
And in that context, we have set those goals in context of our general manager’s goals. So they are accountable for delivering innovation plans, cost savings plans and sustainability plans with extensions altogether. And that leads you to what would be the P&L impact. But we're always trying to achieve as a triple win. And we can't always do this, but it's why we have our general managers in charge of sustainability and we embed it in the business. We would love something to be a more sustainable option. So we removed plastic or we removed some type of waste element. We make something refillable, change the form. So we'd love that to be a cost savings.
And in a lot of cases, if we concentrate something or do it differently, we can actually get a savings out of it. And then we would love it to be at least parity, but preferably better from a consumer experience standpoint. And we have numerous cases where we've done this in the past. A good one that we've done multiple times is concentrating Clorox liquid bleach. It's really good for the planet. We're not shipping as much water around. We're reducing plastic usage, it's better for store shelves in terms of holding power. So retailers love it. When consumers get at home, it's much easier to use, and they have a better product experience. And then certainly, it saves us money. And so we're aiming to get that.
Lauren, it's not always going to be the case, though. There are going to be things we're going to invest in. PCR is a great example. We wanted to be using 100% PCR by 2025. And that's more expensive at the moment. And so there are places where they're going to invest and use the P&L to do that, and we're going to continue to drop cost savings and to offset that. But in aggregate, we believe it's the right thing to make sustainable transitions that it’s right for the long-term value creation of our business and over time that service money and cost us money, but we still think it's the right long-term value creator. And in the short-term, we're managing that while continuing to expand margins so that we contemplated this year that we'll make significant progress on our sustainability goals while we're building margins.
Lauren Lieberman
Okay. And also to Kevin's point, going beyond that pre-COVID benchmark also is very much in the card even as you're making investments in sustainability. Would you say...
Kevin Jacobsen
As it relates to gross margin?
Lauren Lieberman
Yes, yes.
Kevin Jacobsen
Yes. So for us, job one is to get back to pre-pandemic levels of gross margin. As you think beyond that, Lauren, our expectation is through our cost savings program in a normal cost environment, you can offset cost inflation and take a little bit to the bottom line to grow margins over time. But there's no question. In the immediate term, it's about rebuilding the pre-pandemic levels. And then longer term, we'd expect to make progress on expanding margins over time.
Lauren Lieberman
Okay. Great. Switch gears a little bit and talk about distribution. So many of your products were very popular were released during COVID and then demand often outstripping supply. So with that mismatch and a lot of your categories, retailers had to go to other suppliers to kind of to fill the needs that they needed to have on their shelves. So I guess where would you say you stand now when you think about total distribution points or your share of shelf within the category – another way is important way to look at it versus where you were pre-pandemic?
Linda Rendle
Well, the good news is we were popular during the pandemic, and we're still popular. So that helps the execution of this and what the results are. So you're absolutely right that we were not able to fully supply during the height of the pandemic and so we [indiscernible] bring third Tier brands and we're largely through that. So most of that have been rationalized, and we're back to assortments generally that makes sense from a retail perspective. And so that moves versus the pandemic time, we've significantly grown share of GDPs, the measure that you talk about, we're up well over a point since the pandemic.
Now we're still slightly below where we were pre-pandemic. But at the same time, we've been able to increase the efficiency of each one of those items on the shelf. So the dollars per unit are higher. So those two things that are moving in the right direction and the execution has been strong. And our retail partners have been very collaborative, ensuring that we have category growth plans that are led by our brands given we're number one and number two share brands.
Lauren Lieberman
Okay. Great. Are there – I guess are there – your categories are different, right? You’ve got cleaning, you have the first suite, right? There's [indiscernible]. So as you think about the portfolio in the different categories, are there ones where there's greater incremental opportunity to grow distribution to grow shelves, whether it's shelf space in a retailer or more broadly distribution?
Linda Rendle
Well, I would say a category that grows faster always has more opportunity for distribution because typically it requires more holding space. And then also of course, I think it's important to know, the digital shelf is a very different [indiscernible], because you don't think about it in traditional share of GDP. I hate to say there's unlimited ways that you can gain distribution. So we're thinking about that. For example, you rightly point out Burt's Bees and Brita that have grown very quickly. And so we're always working with retailers and ensuring we're having the right space, that we have the right distribution online. And you've seen that, you've seen shelf expansions in categories where we've been able to have a faster category growth and faster brand growth.
And then in other cases, we're leveraging things like sustainability and compaction to actually reduce the amount of shelf space overall for a category. And that makes good sense from a retailer perspective and drive efficiency for them. It doesn't impact the way the consumer interacts with that, as long as we get it shelves, right, et cetera. So I think sometimes it's a very valid measure to say, is more space better, yes, sometimes, but not always. And that's we're balancing across our categories depending on how consumers shop them, the degree of penetration online and then again, how fast they're growing and the growth opportunities moving forward.
Lauren Lieberman
Okay. I guess, take the inverse of that. Are there areas where you think the distribution footprint, and maybe this is by channel, not saying by retailer, but by channel broadened out to places where it's maybe not as relevant. Is there distribution that spread to outlets where you think it's not the best environment for your brand for a given category where it would be a worthwhile exercise to pair back?
Linda Rendle
Well, we want to be where shoppers are, and so if shoppers in our channel, we want to be there. And we want to have the right proposition to obviously create value overall for our company. But that's really the key way that we – a lot of channels have started over the years, I think people have feared that and we don't fear it. When dollar started, we were one of the first people to have a team on the ground, when e-commerce started the same thing. And so we approached that as we have to be ubiquitous for the shopper, and then we'll do all right things on the economics to make that work for us. And that has worked really well, being where the shopper – I'm very comfortable with where they're distributed today. And I feel really good about all the channels and the way they're performing.
Lauren Lieberman
Great. Let's talk about household penetration. So we spoke to an expectation that it would be down for Clorox and for the categories overall, given how much pricing there's been. Maybe just first off, do you see a marked difference across categories for where household penetration is pending?
Linda Rendle
No, and you're exactly right that we anticipated. And one of those IS-1 trade-offs we made, when we took pricing was that household penetration would come down. Now, putting that in context, we're still in the U.S. distributed in nine out 10 households, and we have very high penetration across our categories. But we did know that that would come down. And typically what ends up happening is you lose some of the light users in the category or people who have newly entered, they tend to exit during times of taking pricing. And then we see usually their heavy users use more. And that's exactly what we've seen. We made that trade off eyes wide open.
But that being said, we're very focused on as we return to volume growth, returning to household penetration growth and getting that back. And we do that through good innovation, through brand building, through using merchandising in a strategic way to introduce consumers either back to our items that they might have walked away from or walked away from the categories. Also, new users who've never tried us before, back-to-school is a great time to do that. That's typically a period where we introduce parents to our products as they're sending their kids back to school. And we just did that this summer. So that's what we'll be focused on, is gaining that household penetration back, but we feel good about where we are versus the category, we're right in line in terms of the household penetration decline that we've seen. And we have followed plans in 2024 to begin to reverse that trend over time.
Lauren Lieberman
Okay. So I was actually going to ask about the back-to-school season. It's been a very journey back-to-school season? – tells me that's what's happening. So I'm just curious, then if you've seen any kind of pickup in this – right the businesses that have traditionally benefited quite a bit during back-to-school season, but COVID creeping back in quietly with the conversation strep, it's all there. So yes, just curious about incremental merchandising or activity that you've had just in the, let's call it recent weeks.
Linda Rendle
We plan a very strong back-to-school plans for our cleaning business, Brita and other items that are sold and back-to-school. We'll of course report on that when we come out and talk about Q1 earnings and how those performed. But we were very pleased with the plans that we had in place with our retailers. They were excited about it too, to have a more normalized back-to-school period and bring shoppers into their stores. What I would say is, as it relates to your comment on illness, it certainly is out there. It's a more normalized environment where people unfortunately are getting cold.
And again, there's a lot of things going around and that's the way that we're continuing to remind retailers. We need to put our product in front of the consumer, remind them to do this, to keep them well, to keep their kids in school. And so it provided a great opportunity as we got through the lapse of COVID to continue to work with them, to have the right plans to build the category moving forward. And our assumptions of the school year 2024 is a normalized colon flu season. We always pretty much make that assumption and then we'll update you as we learn more about what's expected. But yes, there's certainly a lot of germs going around right now.
Lauren Lieberman
Okay. Fingers crossed. Another business with some seasonality too at charcoal, right? So charcoal, ended up having a really nice recovery this summer or through the end of the fiscal year. I guess just curious though, longstanding objective had been to get charcoal to be less seasonal, right? To have more year round drilling, and then the consumer kind of took you there, during COVID. So I guess now, do you think we're at a point you can start thinking about, again, more normalized through this curve on charcoal and we kind of lapsed some of the bigger ups and downs, and maybe just an update on the improvements you've made on price gaps if that's held through the current weeks.
Linda Rendle
So broader context on case, I hope it would be helpful for people. Back in 2018 and 2019, we looked at that business and it wasn't meeting our expectations and there were a number of factors in play. One, we saw alternate forms outside of Briquets really expanding, and we didn't play materially on those forms. And we needed to revamp our innovation pipeline to address that. We needed to address the fact that retailers were using Kingsford Briquets in a very exciting way, but not a way that was sustainable to drive store traffic. And so they were deeply discounting and the category was no longer as profitable as it needed to be. So we put a plant in place in 2018 to reverse that. We put a new merchandising plants in place. We put innovation, we launched a set of [indiscernible] and that led to a very strong performance during the pandemic, not at home and buying [indiscernible] and growing more, but we think the playbook we put in place performed very well during that time.
In Q3, we saw more competitive activity from private label and some third-tier brands. And so we had talked about the fact that we weren't happy with our performance and we immediately made plans to adjust that, including Lauren, to your point, that we had larger price gaps than we wanted because private label did not follow our pricing that we took in December. And that worked in Q4. So Q4, the business performed well. About 50% of our business was done in Q4. So that was a critical period for us to ensure the health of our charcoal business.
So what I'd say on seasonality moving forward? People really love to grill on Memorial Day July 4th and Labor Day. I don't think we're going to ever change that. So this business will be a seasonal business moving forward, but what we can do is continue to expand the occasions the more people are grilling for everyday new occasion. When they stay at home more during the week or because of they're experiencing more tough economic times, they tend to cook at home.
And that's a great opportunity for us to help them make a meal on a grill that tastes great on a Tuesday night. So we continue to do that, but we would always expect that we're going to have those big bumps during those key holidays. But we continue to work on what we call extending the season.
Lauren Lieberman
Okay. Another, this is going to make strike you as an oddball question because I'm guessing you never get it. But another business where he's expanded the occasions Hidden Valley?
Linda Rendle
Let's talk about Hidden Valley. Lauren, you're making me happy. Yes, because it's huge. So at least in Nielsen data, right? It's your second largest business. It's a business, it's a large business, right? It [indiscernible] 14% of Clorox's sales and again, when's the last time you were, let's not rhetorical question the last time you asked that Hidden Valley.
So I think just an update kind of on that business growth driven success, maybe learning from that business, it could be applicable to other, even though again, it's such a different business but maybe are applicable to other categories in which you compete.
Hidden Valley, which is a ranch business for us, has done extremely well. And it's a big business for us and it's one of, we have a few other food brands, but it's really our only major foray in the food business. And it's a wonderful flavor enhancer that we have been able to take our innovation and brand building capabilities and grow over time. So if you just look at the last four years, Lauren, we've grown that business high single digits from a CAGR perspective over the last four years. And we've grown market share quarter after quarter after quarter for multiple years.
And what works really well, it's a very strong brand that consumers love. It's a taste of ranch. When people think about ranch, they think about Hidden Valley. We've been able to use innovation to create new flavor profiles, new forms in order to let the consumer use it and all the occasions they love. So food trends have changed. If you're pro protein, if you're a vegetarian, if you use the grill, if you use the [indiscernible] there's a form for Hidden Valley that allows consumers to get that great taste. And as well as expanding into more fashion flavors. So as spice comes up, we're allowed to use ranch as a base, and consumers give us permission to add spice to that as well for order them to enjoy it. So it's a great case of all of our capabilities in it's – in their full form, great margin work to allow to invest in the business. Strong advertising and self-promotion, great innovation, great retailer plans and of course that's the model for the rest of the brands. That Hidden Valley has absolutely been a star. I love that brand.
Lauren Lieberman
So let me take that into a broader portfolio question, because you've got a Hidden Valley, [indiscernible] asked about. And then VMS, hasn't really gone hoped, back in the day. That's been very clear and transparent on that. As you just think about your overall portfolio, right, or category exposures, how are you thinking about portfolio development, right? Whether it's white space, what's the, I guess the checklist as you think about potential changes to the portfolio, what would be the criteria? What would be interesting to add organically or inorganically?
Linda Rendle
There's two big buckets of things we think about in the portfolio, and the first it's related to, how we think about uses of cash is we always want to invest in our business to start. And that means ensuring that we're investing in the right opportunities in our portfolio. So you rightly call out VMS, which is a good example of a set of businesses we bought a number of years ago, that were in categories that were, we viewed pretty attractive, they were growing faster, they were on trend, but our performance has not met expectations in our own expectations. And so that is a good example where we've right sized, we're focusing more on making that more profitable and then being a nice contributor, albeit smaller contributor over time and taking that investment and putting it in things like Hidden Valley where we see a greater return. So we're doing that work in the current portfolio that we have and maximizing across a very diverse set of brands that we have. And then we're always doing the work with our Board to say, what other spaces with our capabilities on them have to where we could create great value. We are highly focused on return, though. We want to buy something that has strong returns for our shareholders.
And then of course, if there's a business that we feel is underperforming in our portfolio, that we would look at that the same way. And we do that all the time with our Board and constantly evaluating, but the most important thing that we do is making those internal allocation choices, year-to-year to ensure we're maximizing what we can get out of what we own.
Lauren Lieberman
Okay. I mean, what would you say on those key capabilities, right? Because I think back, I won't do the history thing, but like there was a period where Clorox had a very specific way of talking about its capabilities that where it played, where it didn't play and so on. And then the thought process and how to expand that because it, the portfolio fairly disparate, right?
I mean they're big type of businesses, but the synergy between them are not always all that, that clear from an external standpoint. So if you think about with the Board, what could be interesting, what are the key capabilities that you have that you think are most applicable as you explore the art of the possible?
Linda Rendle
We like to be in categories that are more middle-sized, and that's really about being able to ensure that we create value because there's a competitive set that's more rational and we tend to lead in those size categories with one, number one and number two share brands. So we can bring big company capabilities to categories that have fewer competitors and are a bit more rational. So we like to compete in those types of categories. And then what we bring, and really it's all centered around how we create superior value. We bring the capabilities to develop superior value brands for consumers that win in the marketplace.
And if you look at our value superiority rating that would play out. Our superiority is higher than it was pre-pandemic. And we've done that through investments and innovation, through investments and brand building, and we're really good at that. And we're good at taking categories that, that benefit from long-term trends and taking those trends over a number of years and leveraging innovation to take advantage of them. A good example of that would be, broadly in our categories, aesthetics and experience matter. So we brought that to life in cleaning products through the way a product feels, the way it smells. Same thing in a trash bag. We're able to take that trend and over time give the consumer more and more benefits through good innovation, that we own and have the rights to and then investing in that innovation. And that's what we're really good at.
We're less about fashion, we're less about fast trends. And then we're very good at supply chain and removing costs to invest back in those brands. So whenever we're looking at a business, we're asking ourselves, is this a place where we can take a business over the long-term, invest very steadily in innovation, invest in brand building, and make it, you know, be the leading player in that category and help guide where that category goes over time. And that's where we see really good returns on the investments that we make. And that's what we would be looking forward, moving forward looking for moving forward.
Lauren Lieberman
Okay, great. You mentioned earlier that your financial plans for fiscal 2024 assume a recession back half of the year, right. And that's helping to inform the advertising plans and the step up. One question I had from the earnings call was how recession would even impact your business candidly, sort of we've seen value seeking behavior across people already, right? For your business as well. You're going to have lots of pricing in the second half. We've noted consumer tend to come back to brands after time [indiscernible]. How would recession manifest to impact your business and therefore be influencing the financial outlook?
Kevin Jacobsen
And you're exactly right, Lauren. We've assumed outlook in the back half of our fiscal year, which is the beginning of calendar year 2024, a mild recession in the U.S. And that manifests itself in a number of ways in regard to how we respond to that. Lauren, and you know that’s – if you look at our categories, they tend to be fairly recession proof. If you look at the last recession back in 2008, if you assume that's a reasonable comparison period, because of the everyday essential nature of our categories, you don't see a significant reduction in category growth.
Our categories typically grow 1% to 2% per year in a normal year. And in 2008 we saw our categories decline anywhere from about flat to down about one point. So fairly modest change in category growth rates as a result of the recession, primarily based on the nature of our portfolio. And so we expect consumers to be under some level of pressure and put a little pressure on our categories. It also informs our plans. And so as you mentioned, we are investing in advertising 11% of sales. Typically we invest about 10%, but we think that's a good smart investment if you think the consumer's under more pressure this year, and we're going to be even more focus on value. We want to reinforce our value superiority messaging. So we think there's a good opportunity to lean into spending based on an assumption of a mild recession. But historically, it's been a fairly modest impact in our portfolio.
Lauren Lieberman
Okay. Are there, just speaking to advertising, are you finding, what are you finding is the best way to reach consumers? You know, kind of what's the best – the idea of marketing mix these days? I'm guessing different across categories?
Linda Rendle
What we aim to do is have a personalized relationship with consumers and not in aggregate is what we use to decide the vehicles that we have. And that tends to be digital. And it tends to be across the entire path to purchase from a consumer perspective when they're deciding when they're in store online. And of course, our best advertising too is when they come home and use the product and they are delighted by it.
So more than two-thirds of our spend today is in digital. We had a goal on, as you know, to get to know a hundred million consumers in the U.S. and therefore use that digital marketing to personalize content to them. And that has led to significant improvements in ROI in fiscal year 2023, we've had our strongest marketing ROI that we've had. And then of course has led to our consumer value superiority, which is an important thing over the long-term that helps us do is increase that brand description of the value superiority that we have. And that is at record highs. So that's the way that we think about, advertising is both in the short and long-term and we use vehicles depending on ROI that are the most effective. And that can be different by brand. Some brands respond much more to retailer media, for example, other brands, like Hidden Valley, giving them recipe content is highly effective. So we really do tailor and allow the general managers to make decisions based on what's best and what the best return is they can get, on their brand and with their set of consumers.
Lauren Lieberman
Okay, great. We end there. Thank you both so much for being here. I think we'll have a breakout session. So please join me in thanking Linda and Kevin for being here and then you can keep going at breakout if you are on.
Linda Rendle
Thanks, Lauren.
Lauren Lieberman
Thank you.
Kevin Jacobsen
Thanks, Lauren.
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The Clorox Company (CLX) Barclays Global Consumer Staples Conference (Transcript)