P&G benefits from hike in marketing spend

29 January 2010

CINCINNATI: Procter & Gamble, the FMCG giant, posted an increase in revenues during the last quarter, having heightened its marketing expenditure during this period.

The Cincinnati-based firm reported net sales growth of 6% from October to December, to $21.1 billion (€15.1bn; £12.9bn), with organic sales improving by 5%, while earnings fell 7%, to $4.7bn.

Bob McDonald, its chairman/ceo, said "our investments in innovation, portfolio expansion, marketing support and consumer value are working."

"While economic uncertainty remains, we're confident these strategies will enable P&G to serve more consumers in more parts of the world, more completely and deliver profitable market share growth."

In a statement, the world's biggest advertiser reported that selling, general and administrative costs rose by 170 basis points, a trend which was partly attributed to "increased marketing spending."

"Our Q2 organic sales growth was due to the underlying marketing growth of about 3% … the organic volume growth was strong in every region and that's what drove organic sales to the high end of our guidance range," McDonald continued.

More specifically, the organisation boosted the support behind its beauty brands, which include Pantene and Wella.

Such an approach yielded a 4% uptick in like-for-like sales, despite the "continued contraction" of the fragrance market, and on-going softness in the premium sector.

P&G's grooming division, which houses Gillette and Braun, also saw comparable revenues improve by 3%, despite the fact the company reduced its investment in communications in this category.

Fabric and home care, featuring offerings like Tide and Febreze, registered an uptick of 7%, aided by "pricing investments to improve consumer value" and a renewed focus on advertising.

Baby and family care, and snacks and petcare, also delivered organic growth, with these areas seeing a mixture of merchandising and promotional activity in an effort to attract price-conscious shoppers.

As previously reported, P&G has also instituted price cuts on around 10% of its products, with the intention of offsetting the cost advantage enjoyed by discount and own-label alternatives.

More positively, McDonald added that the increased competitiveness in the market, which has led chains such as Wal-Mart to remove under-performing products, has actually benefitted P&G.

"De-stocking as retailers do actually benefit the Procter & Gamble company because we create market leading brands," he said. "The leading brands are usually the ones that end up being on the shelf and end up selling more."

Innovation is another area receiving greater emphasis from the company, and it will launch a new version of Pampers Swaddlers & Cruisers, with "Dry Max technology", in the US in March.

Its initiatives in the laundry category include the continued roll out of a variety of extensions to its Tide detergent brand in various markets, and the introduction of Ariel Professional in different countries.

"Our innovation program is happening all over the world. We're spending behind the innovation program to get the awareness and trial objectives we need to grow market share profitably," McDonald said.

"There really is not an unevenness in our spending country-to-country or innovation-to-innovation. It's spending behind the innovation program, it's spending behind the core business and the whole idea is to grow market share profitably."

In the light of its most recent results, P&G upgraded its organic sales guidance for the year by 1%, placing its forecast in the 3% to 5% range.

"I think this idea that this economy is causing everyone to trade down is a little bit overly general and too broadly applied," McDonald stated.

"Innovation and improving lives is really what is critical for us on a consumer-by-consumer basis."

Data sourced from P&G/Seeking Alpha; additional content by Warc staff