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Procter & Gamble (NYSE
G) is the world's largest producer of household and personal products by revenue, with its products reaching 4 billion people worldwide.[1] including Tide detergent, Pampers diapers, and Gillette razors, that generate over $1 billion in revenue annually,[2] with the company's reporting net income of $13.4 billion on revenue of $79 billion in 2009. [3][4] In 2009,
One of the key areas of growth for the company is in emerging markets worldwide. Sales in developing nations have increased steadily from 20% of total revenue in 2002 to 32% in 2009.[3] P&G already owns large and growing market share in countries including China and Russia. P&G has created products such as Downy Single Rinse, low-water volume detergent, and Naturella, a low-income feminine protection product, specifically for developing nations. [5] In light of the global economic downturn, P&G has announced it will focus its growth strategy on emerging markets, opening almost all of its 20 new manufacturing facilities outside its established markets. [6]
Proctor and Gamble looks to bring in new product ideas from outside the company. Connect + Develop has led to the development of 42% of new P&G products in recent years. [7] [8] In February 2010, the company said it will launch a "flurry" of new products globally, using innovation to boost sales in fiscal 2010 coming out of the global recession.[9]
In July 2009, CEO A.G. Lafley stepped down from his post after 29 years with Proctor & Gamble.[10] He was succeeded by current COO Bob McDonald.[11] The company expects sales to be up 0 to 3% in fiscal 2010, [12] with sales back up in the fall of 2009, fed by price cuts, new products, and value-focused promotions. [1]
Contents
1 2011 Q2 results
2 Company overview
2.1 Business Growth and Divestitures
2.1.1 Folgers Sale
2.1.2 Sale of Pharmaceutical Unit
2.2 Online Sales
3 Trends and Forces
3.1 Different product price points provide some insulation against recession
3.2 Retail Consolidation
3.3 Rise of Private Labels
3.4 Developing Markets
3.5 Research & Development focuses both inside and outside the company
3.6 Commodity Prices
4 Competition
5 References
For fiscal 2010, the company reported a 5% increase in net income to $12.7 billion and a 3% increase in net sales to $78.9 billion. Organic sales grew 3% and volume grew 4%.[13]
2011 Q2 results
For the second quarter of fiscal 2011, net income fell to $3.33 billion from $4.66 billion a year earlier. Excluding discontinued operations, profit rose 5.8% to $3.33 billion helped by declining income tax expenses. Excluding other extraordinary items, profit per share came in at $1.13, slightly beating analyst expectations of $1.09. Sales at $21.3 billion trailed analyst estimates. [14] To spur sales, the company has introduced lower-brands to appeal to consumers who have grown more cost-conscious as employment in the U.S. remains near 26-year highs. Although the company is looking to developing countries to fuel growth, more than 40% of sales came from North America in 2010.
Company overview
With $79 billion in sales across the world in 2009 and 24 brands with $1 billion of sales each,[4] P&G is a global giant for household and personal goods. P&G divides its business into three Global Business Units (GBUs) that develop and produce products and its Corporate group which handles the operation and administration of the company.
Beauty (34.0% of 2010 sales, 38% of 2010 net income)[15]PG 2009 10-K, Note 11, page 70</ref>: The Beauty GBU includes all hair and skin products, medications, razors, electric shavers, and batteries. This business unit includes several product lines acquired when the P&G bought consumer products company Gillette in 2005. Proctor & Gamble's global market share in blades and razors is 70%, primarily centered around its Mach3, Fusion, Venus, and Gillette brands. [16] In June 2009, P&G further expanded its men's grooming business with the acquisition of the high-end shaving company "The Art of Shaving" and the men's skin care line Zirh. [17]
Health and Well-Being (18.3% of 2010 sales, 20% of 2010 net income)[15]: The Health and Well-Being GBU provides oral care, feminine health, pharmaceuticals, snacks, coffee, and pet care products.[18] In oral care, the company has the number two market share position at 20% globally. [18] In potato chips, the company's Pringles brand holds a market share of approximately 10%. [18]
'Household Care (48.4% of 2010 sales, 50% of 2010 net income)[15]': The Household Care GBU manufactures a wide range of products from laundry detergent to diapers. The company's baby care market share in 2008 was 29%. [19]
2010 Global Segment Results ($M)[15]
Segment Net Sales (2010) % Total Sales Net Earnings % Total Earnings Sales Growth Billion-Dollar Brand(s)
Beauty 19,491 24.4% $2,712 25% 3.00% Head & Shoulders, Olay, Pantene, Wella
Grooming 7,631 9.6% $1,477 13% 3.01% Gillette, MACH3, Braun, Fusion
Health Care 11,493 14.4% $1,860 17% 1.82% Actonel, Always, Crest, Oral-B
Snacks, Coffee, and Pet Care 3,135 3.9% $326 3% 0.67% Folgers, Iams, Pringles
Fabric and Home Care 23,805 29.9% $3,339 31% 2.67% Ariel, Dawn, Downy, Tide, Duracell, Gain
Baby and Family Care 14,736 18.5% $2,049 19% 4.49% Bounty, Charmin, Pampers
Corporate -1,353 -1.7% ($817) -7% 1.81%
TOTAL 79,748 99.0% $10,946 100% 3.98% 22 brands over $1B
Business Growth and Divestitures
Folgers Sale
On June 4, 2008, P&G sold its Folgers coffee unit to J.M. Smucker Co for $2.95 billion.[20] As part of the deal, P&G shareholders will receive a 53.5 percent stake in Smuckers and the company will assume $350 million of Folger's debt. [20]
Sale of Pharmaceutical Unit
In 2009 P&G sold its pharmaceutical unit to Warner Chilcott Plc for $3.1 billion in cash.[12] The company expects to book a 43 cent per share earnings boost in Q2 of fiscal 2010 as a result of the sale. [21] The deal allows P&G to focus on its personal care, beauty, and household product divisions. In 2006, the company started winding down its discover-phase pharmaceutical products in favor of licensing late-stage compounds, and announced in 2008 it would exit the drug industry entirely.[22]
Online Sales
In January 2010, the company announced it would pursue its own online retail store to sell its consumer products to US end-users, putting it in direct competition with major retailers in reaching consumers. P&G CEO Bob McDonald said the company could increase its online sales "substantially" over the next few years. In fiscal 2009, P&G's existing online sales accounted for $500 million, or 0.6% of total revenue. The company plans a full scale launch in spring 2010 after a pilot test with 5000 consumers. [23]
Trends and Forces
Different product price points provide some insulation against recession
Household staples are somewhat protected from the US recession and global economic downturn. However, in a recession consumers often turn to cheaper private label or store brands instead of "brand name" products from P&G. To combat private label encroachment, P&G offers at least two product forms in many product categories. For example, the company has seen increases sales in Luvs from Pampers diapers and an increase in Gain detergent sales from Tide.[24] In addition, P&G offers "Basic" versions of its Charmin toilet paper and Bounty paper towels.[25] The company's broad offerings, combined with the necessity of household items, provide a degree of insulation against recession.
Retail Consolidation
The rise of a handful of powerful low-priced retailers has negatively impacted consumer products companies. A handful of big retailers have captured a large share of the market. For example, from 1999 to 2004, the top 10 food retailers in the US increased their share of food retail sales from 53.4% to 58.9%. These large retailers have shifted the balance of power within the supply chain. For example, the company's largest customer, Wal-Mart, accounted for 15% of net sales in 2006, 2007, and 2008. [26] Wal-Mart has exerted its power over other suppliers to their detriment in the past, such as forcing record companies to produce clean-label CDs and pulling adult magazines.[27] A decision by Wal-Mart not to sell a particular P&G consumer product would prevent P&G from reaching its entire target market. In addition, many retailers have pushed their own higher margin private label brands in competition with P&G.
Rise of Private Labels
In the past decade, P&G has faced stiff competition from private label brands or "store brands" of large retailers such as Wal-Mart, Target, and supermarket chains. Private label products often sell at lower price points and earn higher margins because the retailers can control the cost of their production. For example, Wal-Mart offers 5,500 products through its "Great Value" brand, which has increasingly sold as consumers feel the recession squeeze on their disposable income.[25] From 2003 to 2008, sales of Target's private label products rose an average of 15% annually. [25]
Large retailers are close to the consumers, have the point of sale data on consumer behavior and are in better position to understand consumer behavior. These strengths contribute to better private label product development, which directly compete with P&G products. Retailers also promote their own brands as they earn higher margins on them. P&G has addressed this issue by continuously investing in Research & Development and introducing new products as well as offering different versions of its own products at different price points. [25]
Developing Markets
P&G has a well-established market presence in developed countries such as the United States and Western Europe and is looking to its presence in emerging markets. In fiscal 2009, 32% of total net sales came from developing nations,[3] a figure that has increased steadily from 2002 when sales in developing nations accounted for only about 20% of total revenue (approximately $8 billion). [28] CEO Bob McDonald said in 2010 that he wants P&G to grow sales in China and India to reach 1 billion more customers by 2014.[29] In September 2010, PG announced it would bring its Wella hair color products to India, leading an aggressive push for product expansion. Some expect the company to bring its Crest or Oral-B toothpaste to the Indian market next.[30]
In China and Russia, P&G's market share has been consistently increasing in the past five years as Procter & Gamble has put an increased emphasis on establishing its products in those markets. P&G has created products designed specifically to target developing nations. For example, in many countries consumers wash clothing by hand with limited amounts of water. In response, P&G has launched Downy Single Rinse in Mexico, China, Philippines, and 9 other countries. [5] While the average Mexican spends about $20 a year on P&G products, Chinese per-capita spending is only about $3 and India per-capita spending $1. [1] Increasing sales in China and India to the levels in Mexico would add $40 billion in sales to the company's overall revenue. [1]
Research & Development focuses both inside and outside the company
In 2009, P&G spent approximately $2.04 billion on Research & Development, nearly $1 billion more than its closest competitor, Unilever. [31] [32] The two most important factors in P&G's innovation process are its practice of consumer demand research and its "Connect and Develop" R&D structure. First, when entering new markets, P&G sets up in-home visits with consumers in order to fully understand the needs and desires consumers have for household and personal products. This way, P&G gets directly to its customers and is able to cater to their needs. P&G also incorporates consumers' input into the R&D process through its "Connect and Develop" initiative. Through "Connect and Develop" P&G has an online interface set up where people can submit product ideas and provide input on topics that P&G places on the web-portal. P&G staff then sort through the ideas and work with the most promising ones. This process is not responsible for all of the R&D that P&G does, but approximately 42% of new products in the last several years were influenced by or originated from "Connect and Develop." [8]
Early returns on new products released in 2009 are encouraging. Tide Stain Release, a stain-removing detergent released in July 2009, has garnered 10% market share in the US as of November 2009. [33] The Bounce Dryer Bar, an automatic laundry freshener released in August 2009, has captured 7% of the North American fabric sheet market as of November 2009. [33]
Commodity Prices
A diversified consumer products manufacturer, P&G depends heavily on a wide basket of global commodities for manufacturing its goods. Higher commodity costs subtracted 0.5% from gross margin growth.[34] Nearly half of the company's cost of goods is directly related to commodity goods. The company has increased prices due to higher costs of oil and other raw materials. Higher commodities prices are expected to erode profit by $1 billion pre-tax in 2011.[35]
Some commodities of note:
Rising paper pulp prices affects several of the company's tissue businesses, as well as many of its products' paper packaging
Rising petroleum prices affect the fabric and home care businesses. For example, the absorbent materials in P&G's diapers are derived from petroleum products
Natural gas is a key energy input into the manufacturing process of toilet and diaper goods, which are air dried
Competition
Procter & Gamble provides the broadest and biggest portfolio of products in the household and personal care industry with 24 billion-dollar brands. P&G generates approximately one and half times the revenue than its closest competitor, Unilever (UL), and possesses a higher operating margin (20.30%) than any of its competitors as well. The company invests about $2 billion a year in R&D, nearly twice that of Unilever, and equal to the combined total of its other major competitors — Avon, Clorox Company (CLX), Colgate-Palmolive Company (CL), Energizer Holdings (ENR), Henkel (HEN-FF), Kimberly-Clark (KMB), L'Oreal, and Reckitt Benckiser.[36]
Clorox is one of P&G's main competitors, specifically the two companies compete directly in the household products market, especially in household cleaning products. In 2009 Clorox's sales totaled to $5.5 billion, roughly half of which came from sales of household products such as their trademark Clorox bleach products and other cleaning supplies like Pine-Sol.[37] Although much of the two companies' product catalogs overlap, there are significant differences that prevent Clorox from being in complete, direct competition with P&G. For example, one of the largest sectors of P&G's business is beauty products, which are not part of Clorox's product offerings.
Kimberly-Clark competes with P&G in the household products market, particularly in tissues, paper towels, diapers, and feminine products. KMB reported 2009 sales of $19.1 billion. Major K-C brands include Huggies diapers, Kotex feminine products, Scott paper towels and Kleenex tissues. Kimberly Clark sells its products to both consumers and large businesses.
Colgate-Palmolive produces a product catalog that most overlaps with P&G's product lineup relative to other competitors. In 2009 C-P reported a total revenue of $15.3 billion. Colgate is best known for its flagship toothpaste, which had a 44.4% global market share in 2009, but the company also manufactures toothbrushes, dental floss, detergents, soap, and pet care products.
L'Oreal competes with P&G in the beauty products market. In 2009, L'Oreal reported total revenue of $17.5 billion euros. L'Oreal's two biggest product categories are skincare and haircare products. Unlike diversified companies like P&G, L'Oreal is purely a beauty and cosmetics company with its product catalog centered around skincare, haircare, make-up, perfume and other beauty products. However, the beauty industry has much higher margins than certain markets that P&G is involved in, which leads to high profits for L'Oreal.
PG Competitors
Revenue ($M)* Net income ($M)* Operating Margin R&D Spending ($M) R&D as % of Total Revenue Year-over-year Revenue Growth Major Brands/Products
Procter & Gamble[38] [39] $78,938 $12,736 20.30% $1,950 2.5% 3.33% Pantene, Crest, Tide, Downy, Bounty, Folgers, Gillette, Duracell
Unilever NV (UN)[40][41]** €39,823 €3,659 12.6% €891 2.2% -1.73% AXE, Lipton, Slim-Fast, Vaseline, Dove, Ben & Jerry\'s
Clorox Company (CLX)[42][43] $5,534 $603 16.7% $114 2.1% 1.54% Clorox Laundry Bleach, Pine-Sol Cleaner, Glad Plastic Bags, Brita Water Filters
Kimberly-Clark (KMB)[44][45] $19,115 $1,884 14.32% $277 1.52% 9.07% Huggies Diapers, Kleenex Tissue, Scott Paper Towels
Colgate-Palmolive Company (CL)[46] [47] $13,790 $1,737 14.8% $269 1.4% -1.5% Colgate Toothpaste, Colgate Toothbrushes, Irish Spring Soap, Palmolive Soap, SpeedStick Deodorant
L'oreal (LRLCY)[48][49]** €17,473 €2,578 14.8% €609 3.5% -0.39% Garnier Fructis, L\'Oreal Paris, Maybelline, Ralph Lauren
*Fiscal 2010 financials available for PG. All others are fiscal 2009.
**L'Oreal and Unilever financials reported in euroes.
G) is the world's largest producer of household and personal products by revenue, with its products reaching 4 billion people worldwide.[1] including Tide detergent, Pampers diapers, and Gillette razors, that generate over $1 billion in revenue annually,[2] with the company's reporting net income of $13.4 billion on revenue of $79 billion in 2009. [3][4] In 2009,One of the key areas of growth for the company is in emerging markets worldwide. Sales in developing nations have increased steadily from 20% of total revenue in 2002 to 32% in 2009.[3] P&G already owns large and growing market share in countries including China and Russia. P&G has created products such as Downy Single Rinse, low-water volume detergent, and Naturella, a low-income feminine protection product, specifically for developing nations. [5] In light of the global economic downturn, P&G has announced it will focus its growth strategy on emerging markets, opening almost all of its 20 new manufacturing facilities outside its established markets. [6]
Proctor and Gamble looks to bring in new product ideas from outside the company. Connect + Develop has led to the development of 42% of new P&G products in recent years. [7] [8] In February 2010, the company said it will launch a "flurry" of new products globally, using innovation to boost sales in fiscal 2010 coming out of the global recession.[9]
In July 2009, CEO A.G. Lafley stepped down from his post after 29 years with Proctor & Gamble.[10] He was succeeded by current COO Bob McDonald.[11] The company expects sales to be up 0 to 3% in fiscal 2010, [12] with sales back up in the fall of 2009, fed by price cuts, new products, and value-focused promotions. [1]
Contents
1 2011 Q2 results
2 Company overview
2.1 Business Growth and Divestitures
2.1.1 Folgers Sale
2.1.2 Sale of Pharmaceutical Unit
2.2 Online Sales
3 Trends and Forces
3.1 Different product price points provide some insulation against recession
3.2 Retail Consolidation
3.3 Rise of Private Labels
3.4 Developing Markets
3.5 Research & Development focuses both inside and outside the company
3.6 Commodity Prices
4 Competition
5 References
For fiscal 2010, the company reported a 5% increase in net income to $12.7 billion and a 3% increase in net sales to $78.9 billion. Organic sales grew 3% and volume grew 4%.[13]
2011 Q2 results
For the second quarter of fiscal 2011, net income fell to $3.33 billion from $4.66 billion a year earlier. Excluding discontinued operations, profit rose 5.8% to $3.33 billion helped by declining income tax expenses. Excluding other extraordinary items, profit per share came in at $1.13, slightly beating analyst expectations of $1.09. Sales at $21.3 billion trailed analyst estimates. [14] To spur sales, the company has introduced lower-brands to appeal to consumers who have grown more cost-conscious as employment in the U.S. remains near 26-year highs. Although the company is looking to developing countries to fuel growth, more than 40% of sales came from North America in 2010.
Company overview
With $79 billion in sales across the world in 2009 and 24 brands with $1 billion of sales each,[4] P&G is a global giant for household and personal goods. P&G divides its business into three Global Business Units (GBUs) that develop and produce products and its Corporate group which handles the operation and administration of the company.
Beauty (34.0% of 2010 sales, 38% of 2010 net income)[15]PG 2009 10-K, Note 11, page 70</ref>: The Beauty GBU includes all hair and skin products, medications, razors, electric shavers, and batteries. This business unit includes several product lines acquired when the P&G bought consumer products company Gillette in 2005. Proctor & Gamble's global market share in blades and razors is 70%, primarily centered around its Mach3, Fusion, Venus, and Gillette brands. [16] In June 2009, P&G further expanded its men's grooming business with the acquisition of the high-end shaving company "The Art of Shaving" and the men's skin care line Zirh. [17]
Health and Well-Being (18.3% of 2010 sales, 20% of 2010 net income)[15]: The Health and Well-Being GBU provides oral care, feminine health, pharmaceuticals, snacks, coffee, and pet care products.[18] In oral care, the company has the number two market share position at 20% globally. [18] In potato chips, the company's Pringles brand holds a market share of approximately 10%. [18]
'Household Care (48.4% of 2010 sales, 50% of 2010 net income)[15]': The Household Care GBU manufactures a wide range of products from laundry detergent to diapers. The company's baby care market share in 2008 was 29%. [19]
2010 Global Segment Results ($M)[15]
Segment Net Sales (2010) % Total Sales Net Earnings % Total Earnings Sales Growth Billion-Dollar Brand(s)
Beauty 19,491 24.4% $2,712 25% 3.00% Head & Shoulders, Olay, Pantene, Wella
Grooming 7,631 9.6% $1,477 13% 3.01% Gillette, MACH3, Braun, Fusion
Health Care 11,493 14.4% $1,860 17% 1.82% Actonel, Always, Crest, Oral-B
Snacks, Coffee, and Pet Care 3,135 3.9% $326 3% 0.67% Folgers, Iams, Pringles
Fabric and Home Care 23,805 29.9% $3,339 31% 2.67% Ariel, Dawn, Downy, Tide, Duracell, Gain
Baby and Family Care 14,736 18.5% $2,049 19% 4.49% Bounty, Charmin, Pampers
Corporate -1,353 -1.7% ($817) -7% 1.81%
TOTAL 79,748 99.0% $10,946 100% 3.98% 22 brands over $1B
Business Growth and Divestitures
Folgers Sale
On June 4, 2008, P&G sold its Folgers coffee unit to J.M. Smucker Co for $2.95 billion.[20] As part of the deal, P&G shareholders will receive a 53.5 percent stake in Smuckers and the company will assume $350 million of Folger's debt. [20]
Sale of Pharmaceutical Unit
In 2009 P&G sold its pharmaceutical unit to Warner Chilcott Plc for $3.1 billion in cash.[12] The company expects to book a 43 cent per share earnings boost in Q2 of fiscal 2010 as a result of the sale. [21] The deal allows P&G to focus on its personal care, beauty, and household product divisions. In 2006, the company started winding down its discover-phase pharmaceutical products in favor of licensing late-stage compounds, and announced in 2008 it would exit the drug industry entirely.[22]
Online Sales
In January 2010, the company announced it would pursue its own online retail store to sell its consumer products to US end-users, putting it in direct competition with major retailers in reaching consumers. P&G CEO Bob McDonald said the company could increase its online sales "substantially" over the next few years. In fiscal 2009, P&G's existing online sales accounted for $500 million, or 0.6% of total revenue. The company plans a full scale launch in spring 2010 after a pilot test with 5000 consumers. [23]
Trends and Forces
Different product price points provide some insulation against recession
Household staples are somewhat protected from the US recession and global economic downturn. However, in a recession consumers often turn to cheaper private label or store brands instead of "brand name" products from P&G. To combat private label encroachment, P&G offers at least two product forms in many product categories. For example, the company has seen increases sales in Luvs from Pampers diapers and an increase in Gain detergent sales from Tide.[24] In addition, P&G offers "Basic" versions of its Charmin toilet paper and Bounty paper towels.[25] The company's broad offerings, combined with the necessity of household items, provide a degree of insulation against recession.
Retail Consolidation
The rise of a handful of powerful low-priced retailers has negatively impacted consumer products companies. A handful of big retailers have captured a large share of the market. For example, from 1999 to 2004, the top 10 food retailers in the US increased their share of food retail sales from 53.4% to 58.9%. These large retailers have shifted the balance of power within the supply chain. For example, the company's largest customer, Wal-Mart, accounted for 15% of net sales in 2006, 2007, and 2008. [26] Wal-Mart has exerted its power over other suppliers to their detriment in the past, such as forcing record companies to produce clean-label CDs and pulling adult magazines.[27] A decision by Wal-Mart not to sell a particular P&G consumer product would prevent P&G from reaching its entire target market. In addition, many retailers have pushed their own higher margin private label brands in competition with P&G.
Rise of Private Labels
In the past decade, P&G has faced stiff competition from private label brands or "store brands" of large retailers such as Wal-Mart, Target, and supermarket chains. Private label products often sell at lower price points and earn higher margins because the retailers can control the cost of their production. For example, Wal-Mart offers 5,500 products through its "Great Value" brand, which has increasingly sold as consumers feel the recession squeeze on their disposable income.[25] From 2003 to 2008, sales of Target's private label products rose an average of 15% annually. [25]
Large retailers are close to the consumers, have the point of sale data on consumer behavior and are in better position to understand consumer behavior. These strengths contribute to better private label product development, which directly compete with P&G products. Retailers also promote their own brands as they earn higher margins on them. P&G has addressed this issue by continuously investing in Research & Development and introducing new products as well as offering different versions of its own products at different price points. [25]
Developing Markets
P&G has a well-established market presence in developed countries such as the United States and Western Europe and is looking to its presence in emerging markets. In fiscal 2009, 32% of total net sales came from developing nations,[3] a figure that has increased steadily from 2002 when sales in developing nations accounted for only about 20% of total revenue (approximately $8 billion). [28] CEO Bob McDonald said in 2010 that he wants P&G to grow sales in China and India to reach 1 billion more customers by 2014.[29] In September 2010, PG announced it would bring its Wella hair color products to India, leading an aggressive push for product expansion. Some expect the company to bring its Crest or Oral-B toothpaste to the Indian market next.[30]
In China and Russia, P&G's market share has been consistently increasing in the past five years as Procter & Gamble has put an increased emphasis on establishing its products in those markets. P&G has created products designed specifically to target developing nations. For example, in many countries consumers wash clothing by hand with limited amounts of water. In response, P&G has launched Downy Single Rinse in Mexico, China, Philippines, and 9 other countries. [5] While the average Mexican spends about $20 a year on P&G products, Chinese per-capita spending is only about $3 and India per-capita spending $1. [1] Increasing sales in China and India to the levels in Mexico would add $40 billion in sales to the company's overall revenue. [1]
Research & Development focuses both inside and outside the company
In 2009, P&G spent approximately $2.04 billion on Research & Development, nearly $1 billion more than its closest competitor, Unilever. [31] [32] The two most important factors in P&G's innovation process are its practice of consumer demand research and its "Connect and Develop" R&D structure. First, when entering new markets, P&G sets up in-home visits with consumers in order to fully understand the needs and desires consumers have for household and personal products. This way, P&G gets directly to its customers and is able to cater to their needs. P&G also incorporates consumers' input into the R&D process through its "Connect and Develop" initiative. Through "Connect and Develop" P&G has an online interface set up where people can submit product ideas and provide input on topics that P&G places on the web-portal. P&G staff then sort through the ideas and work with the most promising ones. This process is not responsible for all of the R&D that P&G does, but approximately 42% of new products in the last several years were influenced by or originated from "Connect and Develop." [8]
Early returns on new products released in 2009 are encouraging. Tide Stain Release, a stain-removing detergent released in July 2009, has garnered 10% market share in the US as of November 2009. [33] The Bounce Dryer Bar, an automatic laundry freshener released in August 2009, has captured 7% of the North American fabric sheet market as of November 2009. [33]
Commodity Prices
A diversified consumer products manufacturer, P&G depends heavily on a wide basket of global commodities for manufacturing its goods. Higher commodity costs subtracted 0.5% from gross margin growth.[34] Nearly half of the company's cost of goods is directly related to commodity goods. The company has increased prices due to higher costs of oil and other raw materials. Higher commodities prices are expected to erode profit by $1 billion pre-tax in 2011.[35]
Some commodities of note:
Rising paper pulp prices affects several of the company's tissue businesses, as well as many of its products' paper packaging
Rising petroleum prices affect the fabric and home care businesses. For example, the absorbent materials in P&G's diapers are derived from petroleum products
Natural gas is a key energy input into the manufacturing process of toilet and diaper goods, which are air dried
Competition
Procter & Gamble provides the broadest and biggest portfolio of products in the household and personal care industry with 24 billion-dollar brands. P&G generates approximately one and half times the revenue than its closest competitor, Unilever (UL), and possesses a higher operating margin (20.30%) than any of its competitors as well. The company invests about $2 billion a year in R&D, nearly twice that of Unilever, and equal to the combined total of its other major competitors — Avon, Clorox Company (CLX), Colgate-Palmolive Company (CL), Energizer Holdings (ENR), Henkel (HEN-FF), Kimberly-Clark (KMB), L'Oreal, and Reckitt Benckiser.[36]
Clorox is one of P&G's main competitors, specifically the two companies compete directly in the household products market, especially in household cleaning products. In 2009 Clorox's sales totaled to $5.5 billion, roughly half of which came from sales of household products such as their trademark Clorox bleach products and other cleaning supplies like Pine-Sol.[37] Although much of the two companies' product catalogs overlap, there are significant differences that prevent Clorox from being in complete, direct competition with P&G. For example, one of the largest sectors of P&G's business is beauty products, which are not part of Clorox's product offerings.
Kimberly-Clark competes with P&G in the household products market, particularly in tissues, paper towels, diapers, and feminine products. KMB reported 2009 sales of $19.1 billion. Major K-C brands include Huggies diapers, Kotex feminine products, Scott paper towels and Kleenex tissues. Kimberly Clark sells its products to both consumers and large businesses.
Colgate-Palmolive produces a product catalog that most overlaps with P&G's product lineup relative to other competitors. In 2009 C-P reported a total revenue of $15.3 billion. Colgate is best known for its flagship toothpaste, which had a 44.4% global market share in 2009, but the company also manufactures toothbrushes, dental floss, detergents, soap, and pet care products.
L'Oreal competes with P&G in the beauty products market. In 2009, L'Oreal reported total revenue of $17.5 billion euros. L'Oreal's two biggest product categories are skincare and haircare products. Unlike diversified companies like P&G, L'Oreal is purely a beauty and cosmetics company with its product catalog centered around skincare, haircare, make-up, perfume and other beauty products. However, the beauty industry has much higher margins than certain markets that P&G is involved in, which leads to high profits for L'Oreal.
PG Competitors
Revenue ($M)* Net income ($M)* Operating Margin R&D Spending ($M) R&D as % of Total Revenue Year-over-year Revenue Growth Major Brands/Products
Procter & Gamble[38] [39] $78,938 $12,736 20.30% $1,950 2.5% 3.33% Pantene, Crest, Tide, Downy, Bounty, Folgers, Gillette, Duracell
Unilever NV (UN)[40][41]** €39,823 €3,659 12.6% €891 2.2% -1.73% AXE, Lipton, Slim-Fast, Vaseline, Dove, Ben & Jerry\'s
Clorox Company (CLX)[42][43] $5,534 $603 16.7% $114 2.1% 1.54% Clorox Laundry Bleach, Pine-Sol Cleaner, Glad Plastic Bags, Brita Water Filters
Kimberly-Clark (KMB)[44][45] $19,115 $1,884 14.32% $277 1.52% 9.07% Huggies Diapers, Kleenex Tissue, Scott Paper Towels
Colgate-Palmolive Company (CL)[46] [47] $13,790 $1,737 14.8% $269 1.4% -1.5% Colgate Toothpaste, Colgate Toothbrushes, Irish Spring Soap, Palmolive Soap, SpeedStick Deodorant
L'oreal (LRLCY)[48][49]** €17,473 €2,578 14.8% €609 3.5% -0.39% Garnier Fructis, L\'Oreal Paris, Maybelline, Ralph Lauren
*Fiscal 2010 financials available for PG. All others are fiscal 2009.
**L'Oreal and Unilever financials reported in euroes.
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