P&G looks to new products and markets

29 May 2009

CINCINNATI: Procter & Gamble, the consumer goods giant, is planning to expand its operations in rapidly-developing markets like Brazil, China and India, and to launch a range of new products, as it seeks to encourage growth and build its market share both during and after the downturn.

The company has come under increased pressure from consumers trading down to cheaper brands and cutting back expenditure levels more generally, and has now revised its organic growth forecast for the coming year to between 1% and 3%, compared with previous annual targets in the 4% to 6% range.

In terms of net sales, the world's biggest advertiser estimates growth will peak at around 1% in the next year, but also warned that figures could decline by up to 2%.

Speaking at the Sanford C. Bernstein Strategic Decision Making Conference, AG Lafley, P&G's chairman/ceo, said that "despite these challenges, we expect to continue to grow."

"Most importantly,” he added, “we will grow our share. And we are prepared to invest to do just that."

While he did not give any precise figures regarding potential advertising expenditure, Lafely argued this could involve cutting prices, introducing lower-priced products, and establishing a wider portfolio of brands to suit consumers with various spending needs.

In support of low-cost brands, P&G's ceo praised the success of its value detergent offering Gain and Luvs diapers range, which has grown at faster rates that its premium brands.

According to Lafley, "you have to see reality as it is. In every recession there are hosts of compensating consumer behaviors as they manage a more modest budget. We have to expand our portfolios to serve the needs of those consumers. I think a lot of that is going to last."

By contrast, the company will also continue the expansion of its "super-premium" range, such as Tide Total Care.

Such an approach is based on the understanding that "the whole game for us is to manage the premium and super-premium segments in a way so we can deliver affordable entry offerings" and increase revenue and profit.

The company also plans to double its "reach" in rapidly-developing markets like Brazil, China and India over the next five years.

Later this year, it will also launch a range of new products, including an extension to its Tide fabric care brand, a laundry additive called Stain Release, and Bounce Dryer Bar, a fabric softener offering a greater number of repeated uses in dryers.

Lafley said that the "innovation pipeline at P&G is full," and the company will also continue to reduce costs and boost productivity to secure its position.

Overall, he declared a confidence "in P&G and its long-term growth prospects. We made the right choices over the last year to deal with the global economic crisis, and I am confident we are making the right choices as we plan for next year."

However, the Cincinnati-based firm will incur restructuring costs of over $500m (€357m; £311m) in its 2010 fiscal year, up from $400m in the previous year.

Jon Moeller, P&G's cfo, stated that the corporation believes the financial climate will improve in the second half of its fiscal year, and argued: "We want to position ourselves strategically and competitively to be even stronger coming out of the recession."

Data sourced from Associated Press/Wall Street Journal; additional content by WARC staff