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Issue
31 — December 2002 |
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Procter & Gamble was founded in 1837
in Cincinnati, Ohio in the US and is now one of the largest personal care companies
in the world.
The Procter & Gamble Company began life as a small, family operated soap and
candle company in Cincinnati, Ohio, USA. Today it is still headquartered in Cincinnati
but now markets over 300 products to more than five billion consumers in 140 countries
and employs around 110,000 people. The company always seemed destined for great
things. By 1890, the partnership begun by English immigrant turned candle-maker
William Procter and Irish immigrant turned soap-maker James Gamble had become
a multi-million dollar corporation and these days the US still accounts for over
50% of the company's sales. The Moon and Stars first appeared in the 1850s as
the unofficial trademark to distinguish boxes of Star Candles. By the 1860s, the
Moon and Stars appeared on all Company products and correspondence and there is
no truth in the black magic connection rumour that does the rounds with remarkable
regularity. The company discontinued candle manufacturing in the 1920s.
In fiscal year 1999-2000, P&G achieved worldwide net sales of almost $40bn.
Of this, the beauty care division, which includes the brands Secret, Pantene,
Olay and Cover Girl, had net sales of $7.39bn. But the company's interests are
spread much further, taking in baby care, feminine care, health care, fabric/laundry,
food and beverage and tissues and towels as well as beauty care. Big non-beauty
brands in the P&G portfolio include such blockbusters as Tide washing powder,
Pampers nappies/diapers, Pringles snacks and Iams pet foods.
But while P&G is certainly a personal care star it is not one without its
problems. Despite showing strong sales growth, the company's results for fiscal
1999/2000 were dampened by higher spending on product initiatives and Organization
2005 costs, despite showing strong sales growth. Net earnings were $3.4bn ($2.47
per share) compared to $3.76bn ($2.59 per share) in 1999. Results included charges
of $688m after tax for current year costs of the Organization 2005 programme.
Worldwide net sales were $39.95bn, an increase of 5% over the previous year. Excluding
a negative 2% exchange rate impact, net sales increased 7% on 4% unit volume growth.
Such growth reflects strong product initiative activity, the acquisition of the
Iams pet health and nutrition business and progress on flagship brands, mainly
in the fabric and home care category.
Organization 2005 is P&G's restructuring programme, first announced in September
1998, informally begun in January 1999, officially set in motion in July 1999
and still viewed as key to the company's future growth. It is essentially a major
realignment of the organisation's structure, work processes and culture designed
to accelerate growth and innovation and has meant moving from four business units
based on geographic regions to seven Global Business Units based on product lines,
though the company now manages through six units. It also involves new Market
Development Organizations designed to tailor the global programmes for local markets
and develop market strategies to build the company's entire business based on
superior local knowledge.
P&G has also created Global Business Services, which brings together its business
activities, such as accounting, human resource systems, order management and information
into a single organisation to provide these services to all P&G business units
at best-in-class quality, cost and speed. Figures suggest that this project is
delivering savings. The cost of this multi-year programme is estimated at $2.1bn
after-tax over six years, with going savings estimated at $1.2bn per year. The
total cost estimate has increased by $200m, while the company says estimated going
savings have increased by $300m a year.
Getting Organization 2005 up and running has meant a huge amount of upheaval and
has not been without pain, including significant job losses in many parts of the
world. Of these, 29% are from the US and 42% from Europe, the Middle East and
Africa. Europe itself will consolidate into three global business centres in Newcastle,
Brussels and Prague. As Organization 2005 approaches the completion of its second
full year things should settle down.
The beauty sector is P&G's third largest area of operations. Both fabric/home
care and paper products are larger, with health care and food/beverage being smaller.
However, last August, the company merged its global beauty care unit with its
health care division. It is an established player with products in cosmetics,
fragrance and skin care in both mass and prestige markets. Its $7bn+ worldwide
sales in this category ranks P&G third behind L'Oréal and Unilever.
Net sales in beauty care for fiscal 2000 were $7.39bn, comparable with the previous
year, but up 1% excluding the impact of unfavourable exchange rates, primarily
in Western Europe. Unit volume declined 2%, impacted by a difficult competitive
environment in key European markets and significant contraction of the market
in China. Net earnings were $894m, a 3% decrease on the previous year.
Sales in 2001 were slightly ahead of volume due to the company's focus on high-performance,
premium-priced initiatives, including the launch of the Physique styling-led line
in the US and the Olay Total Effects skin care line in Europe.
Earnings for the year 2000-2001 reflect weakness in China and Western Europe and
higher marketing costs associated with the introduction of new products and initiatives
on established brands, such as the Pantene Pro-V revamp, which P&G says more
than offset gains from minor brand divestitures. P&G suffered too in Western
Europe due to the devaluation of the Euro. Plans to restore growth include improved
focus on cost control, as well as the expansion of premium-priced initiatives,
such as the VS Sassoon relaunch and the expansion of Olay Total Effects.
One of P&G's most celebrated brands, Olay, a main focus of development. The
words "Oil of" were dropped from the title in a bid to make it more
appealing to younger women and a number of new products have helped to move the
brand to the forefront in the skin care sector. Europe was the launch pad for
one of these major innovations with the introduction of Total Effects at the beginning
of 2000. Total Effects has won tremendous plaudits in the beauty world, with the
beauty press in particular ever keen to sing its praises.
P&G says it worked with 6000 women worldwide in the development of this sub-brand
in order to really understand what concerns them about their skin as it ages.
This has revealed that there is far more to facial ageing than just lines and
wrinkles. Seven important signs of ageing were identified and the company now
markets the range as helping to reduce the appearance of the seven signs of ageing.
The seven signs in question are lines and wrinkles, uneven skin texture, uneven
skin tone, dull skin appearance, visible pores, age spots and blotches and increased
dryness. It is this combination which is believed to lead to the overall perception
of ageing and the signs are confirmed by dermatologists. To fight all these seven
signs of ageing P&G has incorporated a trademarked vitamin complex, VitaNiacin,
into Total Effects Time Resist Moisturiser which is available in fragranced or
fragrance-free formats and is designed to be used morning and evening.
Table 1: Procter & Gamble - Brands around the world
Region
|
Shaving
products
|
Skin
care
|
Cleansing
|
Cosmetics |
USA
|
Noxzema
Old Spice
|
Noxema
Olay
|
Camay
Ivory
Ivory Moisture Care
Olay
Safeguard
Zest
|
Cover
Girl
Max Factor
Olay
|
Latin America
|
Old Spice
|
Noxema
Olay
|
Camay
Ivory
Moncler
Olay
Old Spice
Safeguard
Zest
|
Cover Girl
Max Factor
|
Europe,
Middle East, Africa
|
Old Spice
|
Noxema
Olay
Roge
Cavailles
|
Infasil
Ivory
Kamill
Litamin
Safeguard
Zest
|
Cover Girl
Ellen Betrix
Max Factor
|
Asia
|
. |
Olay
|
Camay
Ivory
Muse
Safeguard
Zest
|
Cover Girl
Max Factor
SK-II
|
Another new Olay product which again illustrates P&G's more bullish approach
to innovation is Olay Daily Facial Cleansing Cloths, designed to cleanse, exfoliate
and moisturise the skin in an all-in-one disposable wipe. This wipe was first
launched in the US and is now also available in Europe. The company was not the
first onto the market with beauty wipes but the product is an example of P&G's
ability to draw on its wide range of technologies. The woven cloth comes from
P&G's baby care and feminine protection category, the cleanser and moisturiser
are found in its beauty care laboratories and an exfoliant in the cloths comes
from P&G's paper and food and beverage divisions.
Alan Lafley took over as ceo from Durk Jager last year. He was previously global
beauty head so has a particular feel for this part of the business. He was also
aware that the company had tried to move a bit fast in certain areas and neglected
some existing strengths. "In our drive to meet challenges of the market -
globalisation, the internet, consolidation among retailers - we tried to do too
much too fast. As a result we lost critical balance in several key areas,"
he told shareholders. But Lafley has still been keen to increase innovation and
also to speed it up. As a testament to the company's ability to quicken its turnaround
time, P&G introduced a new skin care line for young women in the US last summer
- Noxzema Skin Fitness. This moved from conception to store shelves in less than
nine months. Similar projects are believed to be in the pipeline.
The original Noxzema skin cream first saw the light of day way back in 1914. Dr
George Bunting produced the product himself as an alternative to the greasy, tallow-based
medicating creams of the early 1900s. First called Dr Bunting's Sunburn Remedy,
the inspiration for the name Noxzema apparently came from a satisfied customer
who exclaimed, "You knocked my eczema". A pump action cleansing lotion
was introduced in 1984 and the Plus and Sensitive formulas followed in 1992 and
1994 respectively. The latest addition is H2O Cleansing
cloths, a two-sided innovation comprising a soft side which creates a deep action
foam to clean and a textured side which traps oil, dirt and make-up. The line
now includes 13 products of which over three million are shipped a year.
In 2001 the production rights and a trademark license for Old Spice and Noxzema
shaving products were licensed to Universal Razor industries (URI). This move,
a first for P&G, gives URI responsibility for future development and production
of the products in the US, Canada and Puerto Rico. URI market these shaving products
and work with P&G on special promotional programmes and P&G share in revenue
generated from all future shaving product sales while retaining rights to the
Old Spice and Noxzema trademarks. In addition, P&G continue to operate and
manage the Old Spice antiperspirant/deodorant and fragrance products and Noxzema's
skin cleansing line. URI also launched a line of women's razors and blades under
the Noxzema trademark and intends to drive category growth with branded products
focused on personal grooming and hygiene and has secured private label supply
agreements with key retailers in North America, Europe and Latin America.
P&G says it is seeking business agreements with outside parties to maximize
the value of its intellectual property assets. For this reason, the company has
charged its External Business Development & Corporate Licensing Organization
with the task of selling, licensing and, in some cases, donating its 'treasure
trove' of technologies to other companies and universities. The unit is also responsible
for licensing select P&G brand trademarks.
But rather than granting a license it took the decision to sell another skin care
brand. Valued at $340m, Clearasil was the world's best-selling acne treatment
but it was not deemed to be a strategic fit for P&G so was sold last year
to Boots Healthcare USA and Kurt Herrman GmbH, both wholly owned subsidiaries
of Boots Healthcare International, for £230m, rather more than had been
expected. "Clearasil is a profitable brand. However we must make tough choices
on where to focus our resources among a range of top tier beauty brands,"
said Susan Arnold, president of P&G's global personal beauty care business.
Divestiture of relatively small brands is a key part of the business plan. In
skin care the company had not long since got rid of Biactol and Topexan. Throughout
the company there are plenty of small brands which are subject to divestiture
in the future.
"If every woman is an individual, then how can she be satisfied with products
that are not made uniquely for her?" So opens the reflect.com website, the
first interactive, personalised beauty company and the brainchild of P&G.
The idea is that consumers can use internet technology to help create products
customised for their own requirements. Using internet technology, consumers respond
to questions composed by beauty experts and research scientists to help create
customised, one-of-a-kind products which mirror their needs.
P&G is no longer sluggish when it comes to getting new product development
to market. Speed to market and responsiveness to trends have improved dramatically.
The company will of course continue to operate in emerging markets but its new
product development will focus more particularly on its mature US, Western European
and Japanese markets. As the company says, the intention is to maximise shareholder
value by optimising the brand portfolio.
Author
Clare Henderson
Clare Henderson is managing editor of the cosmetics group at Wilmington Publishing.
The group includes SPC, SPC Asia and European Cosmetic Markets (ECM) magazines.
ECM provides in-depth data on the main cosmetics and toiletries categories alongside
company profiles, regional reports and all the latest news and new products.
Contact:
Wilmington Publishing
Tel: +44 20 7549 8620
Fax: +44 20 7549 8622
E-mail: ecm@wilmington.co.uk or spc@wilmington.co.uk.
Website: www.cosmeticsbusiness.com ext
