P&G predicts emerging markets surge

28 September 2011

CINCINNATI: Procter & Gamble, the FMCG giant, believes sales levels in emerging markets will reach an "inflection point" this year, as it seeks to catch up with major rivals in these nations.

The organisation generated revenues of $27bn from fast-growth economies in 2010, out of a global total of $79bn. This is proportionally lower than the revenues derived from fast-growth economies by Unilever and Colgate-Palmolive.

Speaking to the Financial Times, Bob McDonald, Procter & Gamble's CEO, argued it would see an "inflection point" in 2011. "Today [revenues are] roughly $27bn, and we think it'll be half the company over the next decade," he said.

A challenge that comes with serving shoppers in these countries is creating lines which are affordable for households possessing limited disposable income, although this offers certain benefits.

"A lot of our products are sold in single use sachets, and when you have a single use sachet you either price it at one peso or two pesos, you can't price it at one and a half pesos," said McDonald. "So automatically you price it to two pesos and you get a margin lift."

McDonald revealed P&G's pre-tax margins were "roughly lower" in developing nations than the US and Western Europe, but its post-tax margins are largely equivalent, mainly due to the reduced levies experienced in most emerging markets.

A main advantage favouring P&G is its superior level of know-how and technology, meaning the gap separating its offerings and those made by indigenous competitors is like that between own label and big-name brands in the US.

"Generally those companies aren't able to innovate to the same degree as we would be and what you end up having is a bifurcation," McDonald said.
"Our products [are] generally more higher priced maybe than the local product, but the local product has unequal quality because they use daily labour and they lack some of the innovative materials that a global company can develop."

In areas where consumers typically wash clothes by hand, for example, P&G has adapted its Tide and Ariel detergents, utilising constituents looking after customers' skin instead of formulations to protect washing machines.

At present, 19 of the 20 plants P&G has under construction are based in fast-growing economies, and it is also considering wider changes to reflect its focus on these markets.

"We change the shape of the workforce on an ongoing basis," said McDonald. "We're constantly working to simplify the company."

Data sourced from Financial Times; additional content by Warc staff