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Marketing Strategy - P&G Takes the Axe to its Brand Portfolio
3rd August 2014
Are there too many brands chasing the available demand of households and other consumers? That's the view of AG Lafley, the CEO of Procter & Gamble ("P&G") - one of the world's leading multinationals in the fast-moving consumer goods ("FMCG") sector.P&G has announced that it will look to focus on a much smaller number of consumer brands and cull up to 100 brands from its extensive product portfolio. In a classic example of product portfolio management, P&G wants to focus on those 70-80 key brands that have existing strong market shares and/or fast growth prospects.
Students should certainly be familiar with P&G, the multinational that owns Gillette, Crest toothpaste, Pampers, Duracell, Ariel, Bold, Venus, Oral-N and many other familiar brands. The business has over 120,000 employees worldwide and generated over $80bn in revenues in 2014.
The FT reports Lafley explaining to investment analysts:
“There is a lot of evidence in a number of our business categories that the shopper and the consumer really don’t want more assortment and more choice. Consumers want to keep their life simple and convenient.”
The brand disposal programme is part of a broader strategy of improving shareholder returns by focusing on core market sectors and reducing complexity (and, therefore, cost) in the business.
“We’re going to create a faster-growing, more profitable company that is far simpler to manage and operate,” says Lafley.
In June 2014 P&G took steps to delayer its organisational structure. The firm axed the marketing director role across its entire portfolio of brands, changing the title to brand director.
P&G says its 70 to 80 leading brands accounted for 90 per cent of its sales and 90 per cent of its profit in the year to 30 June 2014. That means that the remaining 100-120 brands contributed relatively little for P&G shareholders.
Their disposal will generate cash flows that P&G can reinvest in their best parts of the portfolio. For many competitors, the brands to be sold will be attractive takeover targets, although I would expect that the majority of the brand disposals will be to private-equity funded deals. Venture capitalists just love buying brands from multinationals (ideally several at one time) and then looking to grow those rapidly before selling onto new owners a few years later!
So, could it be time for Wash & Go to depart the portfolio? Would P&G shareholders stomach the sale of Pepto-Bismol? Will shareholders be happy to get Silvikrin out of their hair?
One industry analyst has created this list of the brands he expects to be sold. Some of these brands look pretty familiar; others less so. Perhaps Lafley is right - we just have too much choice?