P&G enters online arena

Procter & Gamble’s swoop for a 1% stake in online retailer Ocado last week has triggered speculation that the household goods giant is looking to create an e-commerce website to sell its brands directly to consumers in the UK.

This is the first time P&G has bought a stake in a retail operation, and some believe it signals the company’s intention to use what it learns from Ocado to set up its own online sales business.

Such a move would be an explosive development in the world of packaged groceries, going some way to freeing P&G from the stranglehold exerted by retailers such as Tesco and Wal-Mart. It would challenge the dominance of retail brands over shoppers’ choices, and could usher in a new era for fast-moving consumer goods companies.

Some dismiss the idea of P&G becoming an online retailer in its own right as a wild flight of fancy. They believe that the cleaning giant’s explanation for the deal – that it is simply an attempt to glean greater insights into the way consumers shop on the web – should be taken at face value. A P&G spokesman says the £5m investment in Ocado, which delivers groceries for Waitrose, will allow P&G access to the retailer’s data about online shoppers, and enable it to test a “broad range” of communications ideas. “These lessons will provide valuable insights, as we strive to better connect with consumers, improve our communications and strengthen our brand websites,” he says.

But some observers see the deal as a toe-in-the-water experiment by P&G to learn more about setting up an e-commerce site. Quentin Higham, founder of beauty brands consultancy HOQ Consultancy, and a former marketing director at L’Oréal, says: “P&G could set up a one-stop, online shop for its beauty, personal care and household cleaning brands. Of course, it is a bricks-and-mortar manufacturer, but look 15 years ahead – for minimal money, there is a lot it can learn [from Ocado].”

Yet he doubts that the stake will give P&G much more relevant retail intelligence than it could have gleaned from market research or its existing knowledge.

The Cincinatti-based manufacturer already markets its products through theEssentials.com website in Canada, which sells only P&G brands. Some see this as evidence of its online intentions.

But the P&G spokesman says it does not own theEssentials.com, which was originally created to sell hard-to-find spare parts for Gillette electrical brands, such as Braun, Oral B toothbrushes and Gillette battery-operated products. P&G inherited this relationship when it acquired Gillette in 2005, and website operator Field Companies has since added other P&G brands to the site.

However, P&G will be getting some valuable information about the kinds of brands people are willing to buy online, the quantities they order and the mix of brands that different consumers choose.

Investec consumer goods companies analyst Martin Deboo advises against reading too much into P&G’s intentions with the Ocado stake. “Mighty oaks may grow, but this may or may not be the acorn,” he says, calling the investment “small change” for the global corporation.

Under the leadership of chief executive AG Lafley, who took the helm in 2000, P&G has adopted a far more open attitude to new product and strategic development. The introduction of its Connect and Develop programme has seen it enter joint ventures with inventors, chemists and technologists to create new products, ingredients and strategies.

“Since Lafley came along, P&G has had an adventurous mindset, particularly in research and development,” says Deboo. “It has proved to be much more open to outside influences than many of its rivals,” he adds.

There are many good uses to which P&G can put its stake in Ocado, though a lot depends on the nature of the deal. It is unclear what data Ocado will allow P&G to access and how rival cleaning companies will react to having the world’s number one household-goods manufacturer looking at the details of their business.

The P&G spokesman says it gives the company no greater access than it already has through relationships it has struck up with retailers such as Tesco. “It is a small stake and we are not going to be involved in day-to-day operations. We will not be able to see anything competitively sensitive, and we will respect the intellectual property of rivals.” He rules out P&G looking at specific information “like margins”.

“We are a partner with Ocado and want it to be successful, so we respect its need for privacy. We are going to be very principled about this. We won’t do anything that will compromise our competitors or Ocado,” he adds.

Some are sceptical of the idea that consumers would go to a website specifically for household, beauty and personal care products. Former Unilever marketer Zaid Al-Zaidy, now head of international planning at ad agency Rainey Kelly Campbell Roalfe/Y&R, says: “The idea that a one-stop, P&G site would be a destination for consumers is ludicrous. That demonstrates naivety about how consumers shop. It is dubious to think consumers would go there rather than anywhere else.” He points out that online shoppers are “promiscuous” and that P&G’s household goods brands are of little interest. “P&G has never promoted itself as a house of brands. It is invisible,” says Zaidy.

But he remembers that when working for Unilever’s personal-care division, he was impressed by P&G’s ability to use market information to create personal communications and direct marketing, such as targeted sampling campaigns. “We were scared of P&G’s knowledge and ability to deliver one-to-one communications. It was brilliant at direct mail, and that was because of its ability to exploit data,” he says. He thinks the Ocado deal could give P&G some database firepower for direct campaigns.

P&G’s brand website for Olay gives shoppers links to online retailers where they can buy the goods. Cutting out these middle men would give P&G greater control over margins and pricing. However, setting up such an operation would be complex. It is easy to see why industry experts think direct selling over the web is a logical next step for packaged-goods companies, but whether it could ever be viable in practice is open to question. P&G may be about to find out.