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Market Report |
Procter & Gamble — Brand optimisation | Clare Henderson |
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.
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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
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