Alnby: You are right; the margin drag in the North American...

Alnby:

You are right; the margin drag in the North American business is entirely due to marketing spend.

And your point on the 32% Revenue growth for BRG’s own products in North America is well-made and not lost on me.

What should also be noted is that the North American EBIT (ex Keurig) will by the end this calendar year match the EBIT level from the company’s cornerstone Australian business.

From basically breaking even in 2007 to becoming the biggest earner for the company in around 7 years is, I think, a highly relevant consideration.

I have also subsequently learned that the company expensed $1m above the line in relation to start-up costs in the UK, further enhancing BRG’s underlying result quality.

It also means that the “Global” category, which now represents a not-immaterial 16% of total group EBIT, really grew its underlying EBIT by 40% in the half.


Wookie123:

As for the relationship between a dollar of marketing spend and its outworking on a dollar of incremental Revenue or on a level of basis point improvement on Gross Profit Margin, the fact is that I have no definitive idea. The reason I say it is a “good”, rather than a “bad”, thing for management to be making this sort of commitment is because:

1. Self-evidently, the US consumer market is gargantuan (something like US$5bn, I recall reading once) for the kind of stuff BRG sells, and BRG currently garners a mere thin slither of this market opportunity;

2. BRG sells an inherently high-quality, innovative product, so that the brand, once implanted, sticks (Marketing One-Oh-One tells us that if the product is shonky, spending on advertising might induce purchase, but will not create favourable brand reputation that provides for repeat business, cross-selling opportunities and word-of-mouth marketing. BRG products have the opposite resonance with customer, once aware of the product)

So while I can’t quantify why I endorse the increased marketing spend, intuitively it makes sense to me.


Cam