Why Procter & Gamble Is Still The One To Watch
by Tony Daltorio, the Investment U Research Team
Monday, December 28, 2009
It’s hard to find a more blue, blue chip company than the world’s largest consumer goods company, Procter & Gamble (NYSE: PG).
Around for 172 years now, the company does business with over four billion customers in more than 180 countries. And it brings in $79 billion in annual sales from its ventures, 30% of which come from developing markets.
In addition:
- Brands like its Pantene, Wella and Head & Shoulders account for one-fifth of all hair product sales around the world.
- Gillette – also a P&G subsidiary – makes more than 70% of the world’s razors and blades.
- It brought Crest dental whitening strips, Swiffer cleaning mops and a host of other new products to the market, keeping its rivals on their toes to keep up.
But even while it continued setting standards for consumer goods marketing everywhere, Procter & Gamble still stumbled in the last quarter when the price hikes it instituted to combat inflation back in 2008 came back to bite it badly.
Fortunately for its investors, P&G has both the desire and the means to turn this downturn into a profitable opportunity yet…
Mistakes… The Procter & Gamble Way
Like so many other companies around the world, the financial crisis took Procter & Gamble by surprise, exposing corporate weaknesses and sending the giant scrambling to stabilize itself.
Quite simply, the corporation had the wrong product portfolio for the economic environment: A portfolio skewed towards higher-end and discretionary items.
It also got it wrong when it came to the emerging markets, investing heavily in Russia and Eastern Europe – both of which suffered greatly during the financial crisis – and not so much in Asia and Latin America, where consumers already knew how to handle inflation-related price increases.
And Procter & Gamble messed up again by raising prices in its overseas markets to defend its brands’ profitability at a time when consumers everywhere were turning to cheaper items instead.
In Russia, for instance, the company tried to cope with the falling currency by charging more for products like Ariel detergent and Head and Shoulders shampoo not once… not twice… but four times.
Management knew sales would still take a hit doing that, but they didn’t expect nearly the damage they saw in the books when springtime came around this year.
Procter & Gamble’s Comeback Bid
Losing business to smaller competitors everywhere, Procter & Gamble’s new CEO, Bob McDonald, decided to shift the company’s focus away from high-end products and onto value alternatives.
By targeting new customers, this new strategy directly combats the competition through marketing and new value products that take advantage of current consumer trends.
For example, in the U.S., P&G recently launched lower-cost versions of its Charmin and Bounty paper towels, with further plans to debut a cheaper kind of Tide laundry detergent in the near future.
In 2009, the company only offered value versions of about half of its product categories to its 17 top-selling countries. Over the next two years though, that number should increase to about 75%.
Mr. McDonald maintains that the company is now placed to deliver profitable growth over the coming give years. He says:
“In those five years, we’re going from reaching four billion consumers using our products, to five billion consumers. And we’re going to go from the average consumer in the world spending $12 a year on P&G products to $14 a year.”
Boldly going where it hasn’t bothered much with before, the company is targeting international markets these days by building almost 20 manufacturing plants in countries like India – where consumers spend less than $1 per person per year on P&G products – and China, where they only spend about $3.
Of course, with its late start into those locations, Procter & Gamble will have to play a serious game of catch-up against entrenched rivals like Colgate (NYSE: CL) and Unilever ADR (NYSE: UN).
But the global giant has the financial firepower to back it up. And seeing how that’s where the growth is, Procter & Gamble has the conviction to see this strategy through to a long-term successful future.
Good investing,
Tony Daltorio
Related Investment U Articles:
- Tough Times For Consumer Goods Companies
- Get Offensive With Consumer Staples
- China’s Market Share Tough on Multinationals
- These Nations Are the Promised “e-Land” for American Multinational Firms
- RadioShack Plugs Into a $24.9 Billion Industry
One Response to “Why Procter & Gamble Is Still The One To Watch”
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Mr. daltorio: Do you know anything about Gillette’s new
laser to be sold to homeowners? It is licensed by
PTMI (the real play for this
event!)It should happen soon.
Get informed and report to us,your readers.
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