P&G’s response to rising inflation | WARC | The Feed

P&G’s response to rising inflation

Procter & Gamble, the consumer packaged goods manufacturer, is focusing on brand superiority and smart portfolio management as it responds to the challenge of inflation.

Pricing helps drive growth

• P&G’s organic sales rose by 7% in its last quarter of trading, the company reported on an earnings call.
• Pricing contributed eight points to growth while volumes dipped by one point, largely due to its reduced operations in Russia.
• Looking ahead, the company expects value growth of approximately 3% to 4%, primarily driven by price increases.

P&G’s view on consumption habits

• P&G operates in daily-use categories that shoppers do not “deselect in difficult times,” Andre Schulten, its chief financial officer, said.
• However, he noted, the cost of living increase means that shoppers will undoubtedly look more closely “at their inventories and draw that down over a period of time”.
• While price sensitivity has been “more favorable than historical norms to date”, P&G anticipates it will “return to historical elasticities going forward”.
• Buying levels in many of P&G’s verticals also surged in the COVID-19 pandemic, and a portion of that consumption is also likely to “return to more normal levels”, Schulten said.
• The ultimate goal, however, is still to “drive the household penetration opportunities which we have”, he added.

The role of superiority

• Jon Moeller, P&G’s CEO, said the company would look to superior value across “innovation, supply chains and brand equity” for each price tier it competes in.
• Defining value beyond price alone – for instance, through superior product performance and eco-friendly goods – can help P&G avoid being drawn into a race to the bottom.
  
• “As consumers face increased pressure on nearly every aspect of their household budgets, we invest to deliver truly superior value in combination of price and product performance to earn their loyalty every day,” Moeller said.

Portfolio management is key

• Over the last few years, P&G has deliberately built out a portfolio that covers multiple value tiers, Schulten told investors.
• Looking at diapers (or nappies), for instance, its Pampers Pure line commands $0.38 per diaper, versus a figure of $0.35 for Swaddlers, $0.30 for Baby Dry and $0.20 for Luvs.
• “And this exists across, really, all brands. And we’ve been very intentional in building our presence in these different value tiers in the market, so we can serve consumers with different preferences between performance and price,” Schulten said.

• In all of P&G’s categories, Schulten further explained, it has been attempting to create the “right price points” at the everyday level, but also across channels.
• At the same time, it has been pushing distribution across particular channels – for instance, looking at hard discounters and dollar stores for value-driven shoppers.
  
• Promotions are running at around 27% of merchandise on a volume basis, compared with a figure topping 30% before the COVID pandemic. 
  Some categories may need greater promotional activity, “but our intention to win is via innovation, via clarity of value offer, via our superiority, not via price promotion”, Schulten said.

Final thought

“There will be some bumps along the road, and you’ll have to be careful how much you read into any one-week or four-week period. But we’ve got our eyes focused on a longer time period than that, and we’ll be managing accordingly” – Jon Moeller, CEO, Procter & Gamble.

Sourced from AlphaStreet