Procter & Gamble looks to value

14 September 2009

CINCINNATI: Procter & Gamble, the consumer goods giant, will introduce low-cost brands and reduce prices as it seeks to drive growth, as well as heightening its activity in emerging markets, according to the company's ceo, Bob McDonald.

The FMCG titan recently forecast that its organic sales growth will be between 1% and 4% in the final three months of this year, although this will follow on from an essentially flat third quarter.

Jon Moeller, its cfo, said "we are approaching an inflection point in P&G's organic sales trends. The innovations we are launching and the investments we are making are having an impact in the market."

However, Procter & Gamble is still widely regarded as having fallen behind some of its main rivals, such as Unilever, a trend it is now seeking to rectify.

"We've been lagging the competitive average for some time. That is unacceptable," McDonald stated, adding that P&G was very much "in touch with reality" and has "a sense of urgency".

"We acted with urgency to protect the structural economics of our business last year, and we are acting with urgency this year to deliver profitable market share growth."

The Cincinnati-based firm has been reticent to reduce its prices during the downturn, but will now both follow this strategy and increase its promotional spending across 10% of its total business.

Cheer is to be repositioned as a value brand, and the company will also make "targeted interventions" on larger packs of Tide, which is seen as being somewhat uncompetitive on price.

P&G's other initiatives include developing a version of the latter brand, called Tide Basic, which will be around 20% cheaper than the flagship variant.

Simultaneously, however, it will continue to introduce more premium goods, such as Tide Stain Release additive, as it seeks to cover all consumer price points.

International growth is a further area of emphasis, and McDonald outlined the objective of increasing the number of customers served by P&G's brands from 4 billion this year to 5 billion by 2015.

As part of this process, it will sell a wider range of lower-priced products in major emerging markets such as China and India.

Bill Schmitz, a Deutsche Bank analyst, said these moves showed P&G "has taken the gloves off. People thought they had become complacent, waiting for the economy to turn, but this is a change in rhetoric for sure."

By contrast, Andrew Sawyer, of Goldman Sachs, said the world's biggest advertiser "is broadly losing share across its portfolio in the core US market, and emerging-market sales have lagged peers."

"Although the company is clearly devoting more resources to brand support, many of its key competitors are doing the same on a proportionate basis," he added.

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