When Wolfgang Berndt takes up his new job as head of Procter & Gamble’s European operation on October 1 (MW June 11), he will bring a new aggression to the company.
He replaces Harald Einsmann, the 64-year-old executive vice-president for Europe, the Middle East and Africa, who retires next February after 14 years at the helm.
In that time P&G has changed from being a US-centred operation with overseas interests into a global company. From its base of detergents and cleaners it has expanded its interests in personal care products, feminine hygiene, soft drinks and snacks. As the company’s chief executive John Pepper boasts, in the past 14 years European sales have grown five times and “profits have grown more than tenfold”.
The retirement of Einsmann signals the surrender of P&G’s old guard of cautious, risk-averse managers to a new breed of more aggressive, risk-taking executives. Observers put the 54-year-old Berndt in this category. This new group of “hardmen” have a role model in Durk Jager, the chief operating officer who took up the position three years ago, after the retirement of Ed Artz. Jager is one of P&G’s leadership duo with Pepper and is described by one former insider as “abrasive and opinionated”. The source says that Einsmann has “held Jager in check”, on P&G’s board, but with his departure, Jager will look to break more completely with the past, introduce his own initiatives and move his favoured executives into senior positions.
But for the new realities that face P&G, such aggressive attitudes may be an asset. P&G brands face saturation in key Western markets and, for the past five years, the company has leveraged profits growth through cutting costs in distribution, media spending and staff levels.
Berndt’s present position as president of North American business means he will bring first-hand experience of the latest strategies emanating from P&G’s Cincinnati head office – strategies that usually find their way into the company’s other regions.
The latest development from the US is that P&G is axing its Marketing Breakthrough 2000 programme, which aims to cut marketing costs from about 25 per cent of sales to 20 per cent. The goal was to reduce advertising costs by consolidating media buying and slashing ad production costs. As part of this, P&G has a commitment to double its $35bn (22bn) sales within the next ten years. Marketing spend would therefore grow, but at a slower rate than the growth in sales. Last year, sales were more or less flat, rising to $35.76bn (22.3bn) from $35.28bn (22.05bn) the year before. But profits rose faster, at $3.43bn (2.14bn) compared with $3.05bn (1.9bn) in the previous year.
The Marketing Breakthrough programme was introduced in 1995 on the eve of Pepper and Jager’s accession to the leadership, but P&G is scrapping it in the US. Last year, the company reaped $1bn of savings through driving down production and media costs, cutting promotional activity and reducing the number of lines it sells in supermarkets. As part of the focus on efficiency, the company has pioneered “efficient consumer response”, which involves working with retailers to improve distribution.
A statement from P&G’s UK corporate office issued last week said: “P&G continues to pursue its commitments to driving sales growth and making every marketing investment as efficient as possible. This is true everywhere around the world. With respect to Marketing Breakthrough 2000 specifically, activities to suspend the pursuit of the 20 per cent of sales goal is a US decision, not a global one, and reflects investments we need to make behind a number of major new product introductions in the US.”
This is an admission by P&G that cost-cutting alone is not sufficient to address the problem of stagnating profits in mature markets. It has to pump marketing investment behind new products, and one US analyst says it is entering “its most aggressive new product cycle in its history”. This includes the launch of the fat-free cooking oil Olean, the launch of spray-on clothes freshener Febreze and new brand extensions of US washing liquid Tide. New brands are also expected to be launched.
Some observers say this move away from an emphasis on cost cutting is a response to worries on Wall Street that the company is paying less attention to what it does best – launching new products. One source says: “It looks healthier from a Wall Street point of view to show increased profits from new business and not from cost-cutting, which has bolstered profits in recent years.”
P&G says that Marketing Breakthrough 2000 is still alive in Europe, and the company is still aiming to cut marketing budgets to 20 per cent of turnover. But new products launched in the US will eventually cross the Atlantic as P&G is being forced to increase sales through opening new markets. For example, Febreze is already on trial in the UK.
Berndt has been instrumental in this switch of emphasis away from cutting marketing budgets to ratcheting them up with new product launches. P&G’s media suppliers in Europe can only hope he will bring this new strategy with him when he takes up his post. P&G’s four main global agencies are Saatchi & Saatchi Advertising, Grey Advertising, DMB&B and Leo Burnett. Their US offices can already take comfort from P&G dropping Marketing Breakthrough 2000 and removing some of the pressure on ad budgets. European divisions are hoping the same will apply to them shortly.