P&G is the world's largest consumer goods company that markets more than 300 brands in over 180 countries. The company is engaged in producing beauty, health, fabric, home, baby, family and personal care products. The company's product portfolio also includes pet health products and snacks. The company's leading market position along with its strong brand portfolio provides it with a significant competitive advantage. However, slowdown in global economic condition is making it increasingly difficult for branded product manufacturers like P&G to maintain their sales volume and revenue growth.
Strengths
1. Strong focus on Research and development
P&G has strong research and development capabilities. P&G’s annual R&D budget is about $2 billion which supports 8,000 engineers and scientists at 25 research centers in 12 countries. Additionally, P&G also involves external innovation partners to boost its internal innovative capability, an approach it calls ‘Connect and Develop.’ In 2002, only 15% of its product initiatives included innovation from outside P&G. Currently, more than half of all P&G innovation includes an external partner. In just the past year, it’s evaluated more than 5,000 innovation opportunities from small entrepreneurs, universities, research institutes, and large companies. P&G is ranked amongst one of the top-20 largest R&D investors among US-based companies, which include Pfizer, General Electric, Sony, Merck, 3M, DuPont and Hewlett-Packard. The best proof of its innovation capability is the number of top-selling new products that come from P&G. The IRI Pacesetters study tracks and ranks the most successful new consumer products introduced in the US For the past 13 years, one-third of the most successful Pacesetter products, on average, have come from P&G and Gillette. Moreover, in 2008, five of the ten best-selling new products came from P&G, including Tide Simple Pleasures detergent, Febreze Noticeables air freshener, the new Herbal Essences line of products, Crest Pro-Health toothpaste, and Olay Definity skin care products. Its research and development capabilities have enabled P&G to secure about 27,000 patents globally. Strong focus on research and development allows P&G to renew its product line at regular intervals, which boosts customer loyalty and revenue growth.
2. Leading market position
P&G has leading market positions across most of its businesses. It competes primarily in 22 global product categories and is a market leader in over two-thirds of these categories. P&G is the global
market leader in beauty segment with leading market shares of over 20% and 33% in the hair care and feminine care categories respectively, owing to its brands Always, Head & Shoulders, Olay, Pantene and Wella. The company also holds a leading position in oral care. In pharmaceuticals and personal health, P&G has approximately 33% of the global bisphosphonates market for the treatment of osteoporosis under the Actonel brand. The company is also a global leader in nonprescription heartburn medications and in respiratory treatments. Actonel, Crest, and Oral-B are well known brands in the company's health care segment. The company is also the market leader in fabric care with global market share of approximately 33%, with key brands such as Ariel and Tide. In baby care, the company has a global market share of over 32%, competing through the strong Pampers brand. The acquisition of Gillette has enabled P&G to hold leading market share in manual blades and razors segment with a global market share of approximately 70%. Leading market position provides it with significant competitive advantage as well as stabilizes the company's financial growth.
3. Diversified product portfolio
P&G has diversified product portfolios. The company participates in more than 22 global product categories with 300 brands in over 180 markets. The company markets a range of products across six segments: beauty; grooming; health care; snacks, coffee, and pet care; fabric care and home care; and baby care, and family care.
In the beauty segment, the company's products include cosmetics, deodorants, feminine care products, hair care, personal cleansing and skin care products.The grooming category sells products like blades and razors, electric hair removal devices, face and shave Products, and home appliances. Feminine Care, Oral care, pharmaceuticals, and personal health care products are marketed under the health care segment. The snack, coffee, and pet care category deals in coffee, pet food, and snack products.
The fabric care and home care category comprises air care, dish care, fabric care, and surface care products. In addition, under baby care family care category, P&G's offers diapers, baby wipes and bath tissue. The diverse product portfolio enables the company to protect itself against demand fluctuations for certain products.
4. Strong brand portfolio
P&G has strong portfolio of brands. P&G’s portfolio includes 24 brands that generate over 1,000 million in annual sales and 20 brands that generate between $500 million and $1 billion in annual sales. Combined, these 44 brands account for 85% or more of its sales and profits. Strong portfolio of brands enables the company to deliver consistent, reliable top- and bottom-line growth.
Weaknesses
1. Increasing instances of product recalls
P&G has been registering increasing instance of product recalls recently. For instance, in March 2007, P&G Pet Care voluntary recalled in the US and Canada canned and foil pouch wet cat and dog food products manufactured by Menu Foods Inc. This voluntary recall was a part of a larger product recall by Menu Foods Inc., a contract manufacturer that makes a small portion of canned and foil pouch wet cat foods for P&G’s Iams and Eukanuba brands. Moreover, in September 2006, P&G suspended sales of the cosmetics in China after they were found by the authorities to contain the banned substances, chromium and neodymium. Also, the company recalled its Sweep Vac by Swiffer Vacuum Cleaner in 2005, after it received several complaints of overheating, including one report of a fire with minor property damage. Recurrent product recalls could affect the brand image of the company, which would lead to low customer loyalty and brand equity.
2. Dependent on Wal-Mart Stores for majority of its revenue
P&G is heavily dependent on Wal-Mart Stores, Inc. (Wal-Mart) and its affiliates for generating major
part of its revenue. Sales to Wal-Mart and its affiliates has represented approximately 15% of its total revenue since 2006. High dependence upon a Wal-Mart reduces the bargaining power of the company. Also, Wal-Mart could use its bargaining power to impose unfavorable terms on the company. Any decrease in revenue from Wal-Mart could have a negative impact on the company's businesses. Hence, the loss of this customer will lead to a sharp decline in P&G's revenues and also a loss of its market share.
Opportunities
1. Expansion in developing markets
The consumer products business is driven significantly by three basic demographic factors: population growth, household formation, and household income growth. These factors are now driving strong growth in many of the company's developing markets including China and Russia. The GDPs of these economies are expected to register a decent growth rate in the future. In China and Russia, P&G is using its portfolio of leading brands to attract, build and expand a network of distributors. Currently its distributor network in China reaches about 800 million people. In Russia, it now has access to 80% of the population. Therefore, with its expanding distribution network, P&G could harness opportunities in these two countries to enhance its market share as well as stabilize its top
line growth.
2. Future growth plans
P&G is pursuing a clearly drafted growth plan. As per its plans, the company has reorganized its Asian operations into one headquarters from three. It is applying this model to other nations as well. Further, it aims to streamline its worldwide portfolio, by as much as 25% through 2012. And at the same time, it is building production facilities in 18 developing countries over the next four years. Currently P&G’s products are used by 3.5 billion people around the world. This growth plans will increase P&G’s reach to an additional 1 billion of the world’s 6.5 billion consumers by 2010. Thus pursuing a clearly drafted growth plans is likely to have a positive impact on the company’s top line growth.
3. Growing Indian FMCG market
The Indian Fast Moving Consumer Goods (FMCG) industry is likely to witness strong growth in the future. It is poised to achieve a 16% growth in sales during 2008-09, compared to 14.5% in 2007-08, according to a survey by the Federation of Indian Chambers of Commerce and Industry. The growth would be attributable to the rising income and increasing demand. The survey points that consumer' preferences for FMCGs are shifting towards higher lifestyle categories like skin care, shampoos, deodorants, anti-aging solutions, fairness products and men's products in particular. In India, P&G’s distributor network covers 4.5 million stores, an increase of two million stores in just five years. Moreover, in India, P&G is present in merely eight different categories, as opposed to 21 categories in the US. This provides P&G with an opportunity to enhance its market share as well as expand its presence in other categories.
Threats
1. Regulatory Environment
Several consumer protection groups are voicing concerns over the presence of harmful chemical ingredients in cosmetic products. A recent study showed that about one-third of cosmetic products contain carcinogens. Due to increasing public pressure, the US Food and Drug Administration (FDA) are expected to impose stringent quality norms on cosmetic products. New regulations may delay launch of new products and result in higher product development expenditure. At the European Union level, the European Commission has published a draft regulation for the registration, evaluation and authorization of chemicals (REACH), along with restrictions applicable to the chemical substances, and has set up a European Chemicals Agency. REACH focuses on the 30,000 chemical substances introduced into the market before 1981 and manufactured or imported in quantities of more than one ton per year, on which hazard information has not been sufficiently well examined by the current system.The European Parliament and the Council of Ministers expect the regulation to be published in 2007 and to come into force in the fourth quarter of 2008. These regulations may impose new liabilities or increase operating expenses, either of which could result in a decline in profitability.
2. Global Economic Conditions
The global Gross Domestic Product (GDP) is expected to increase marginally by 0.9% in 2009, according to the World Bank's report 'Global Economic Prospects 2009'. According to the report, the economic growth rate in developing countries is expected to decline from 7.9% in 2007 to 4.5% in 2009, while the growth in developed countries is likely to be negative, in 2009. The current economic climate is forcing shoppers to watch their expense and look for cheaper options of discounted brands or own label merchandise. Even suppliers as powerful as P&G are under pressure from retailers like Wal-Mart, who are cutting prices and introducing their own labels. These retailers, for sustaining their revenue growths and margins, are promoting their own-labels. The dent in disposable income of consumers caused by the slowdown in global economic condition is making it increasingly difficult for branded product manufacturers like P&G to maintain their sales volume and revenue growth.
3. Counterfeit goods
Trade of counterfeits and pass-offs products is negatively affecting the growth of FMCG companies like P&G. Pass-offs are look-alike products that resemble the original products, mainly through misspelling of the trademark. For example, Sunslik instead of Sunsilk, Clemic Plus or Climic Plus or Cosmic Plus instead of Clinic Plus, Collegiate for Colgate, Vips Rub or Vives Rub as a pass-off for Vicks Vaporub. Whereas counterfeits are the infringement of trademarks and copyrights, duplicate/fake products are passed off as products of the company.
According to AC Nielsen, a global marketing research firm, 10-30% of cosmetics, toiletries and packaged food are counterfeits. The top two brands within any category be it cosmetics, detergents, or soaps are effected the most by counterfeiting and pass-offs. Besides revenue losses, counterfeits and pass-offs also affect the company’s brand as they are unsafe. Moreover it could hit the customer confidence as the fake product does not give the desired results promised by the brand.