QUOTE AND NEWS
Motley Fool Dec 3
The consumer-goods titan has an incredible dividend history, but these three stocks offer even higher yields.
The Economic Times Nov 30
Experts said activist investors and private equity firms have been pushing multinationals towards generating greater shareholder returns, with a focus on margin expansion.
Motley Fool Nov 30
Motley Fool investors like CoreCivic, Procter & Gamble, and Qualcomm for their elevated income payments.
CNNMoney.com Nov 29
Gillette is rapidly trying to transform its image from "the best a man can get" to a cheaper shave.

Wall Street Journal Nov 29
Clusterstock Nov 28
Meghan Markle may have encouraged Procter & Gamble to change the tagline to an advertisement for dishwashing liquid when she was 11. The tagline inspired jokes from her male classmates about how women "belong" in the kitchen. After Markle...
Motley Fool Nov 22
Let's dig into one of the market's longest-running dividend payouts.
Wall Street Journal Nov 22
Procter & Gamble said it is continuing to review the official tally of the hotly contested proxy contest with activist Nelson Peltz but hasn’t decided whether to formally challenge the results, which showed the company lost by a thin margin.

Channel News Asia Nov 22

Channel News Asia Nov 22
SeekingAlpha Nov 22
New York Times Nov 22 Comment
Trian Fund Management accused Procter & Gamble of wasting shareholder money contesting a tally that showed Mr. Peltz narrowly winning a board seat.
Benzinga Nov 19
  This weekend's Barron's takes a look at how the holiday outlook has brightened for some retail chains. Other featured articles discuss a long-suffering tech giant finally showing signs of renewed life and whether an industrials...




Procter & Gamble (NYSE:PG) 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][3]

One of the key areas of growth for the company is in emerging markets worldwide.[2] 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. [4] 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. [5]

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. [6] [7] 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.[8]

Company overview

With $79 billion in sales across the world in fiscal 2010 and 24 brands with $1 billion of sales each,[3] 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)[9]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. [10] 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. [11]
  • Health and Well-Being (18.3% of 2010 sales, 20% of 2010 net income)[9]: The Health and Well-Being GBU provides oral care, feminine health, pharmaceuticals, snacks, coffee, and pet care products.[12] In oral care, the company has the number two market share position at 20% globally. [12] In potato chips, the company's Pringles brand holds a market share of approximately 10%. [12]
  • Household Care (48.4% of 2010 sales, 50% of 2010 net income)[9]: 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%. [13] hduhddhidhdijdhdhdhhi

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.[14] In addition, P&G offers "Basic" versions of its Charmin toilet paper and Bounty paper towels.[15] 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. These large retailers have shifted the balance of power within the supply chain. For example, the company's largest customer, Wal-Mart, accounts for roughly 15% of net sales. [16] 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.[17] 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.[15] 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. [15]

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.[18]


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. Clorox is known for their trademark Clorox bleach products and other cleaning supplies like Pine-Sol.[19] 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. 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. 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. 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.



References

  1. Associated Press "Procter & Gamble"
  2. 2.0 2.1 P&G 2009 AR Results of Operations
  3. 3.0 3.1 P&G 2009 AR 2009 Results Summar
  4. Financial Times, "P&G to shift 'centre of gravity' with growth in emerging markets"
  5. PG, "Connect + Develop"
  6. P&G "P&G to Unveil Flurry of Products"
  7. 9.0 9.1 9.2
  8. PG 2008 Annual Report, "Overview," page 40
  9. Forbes
  10. 12.0 12.1 12.2 PG 2008 10-K, Item 7 "Management's Discussion," page 40
  11. PG 2008 Annual Report, "Management's Discussion," page 48
  12. Morningstar Analyst Report,"PG," 12 Dec 2008
  13. 15.0 15.1 15.2 Reuters, "US Consumer Companies, Retailers Revisit Cheap Brands"
  14. PG 2008 Annual Report, Note 12, "Segment Information," page 74
  15. The Motley Fool, "A Wal-Mart Monopoly?"
  16. PG 2008 Annual Report, page 6
  17. Google Finance CLX