For the brands that P&G sheds, this is the start of a stronger chapter
Procter & Gamble announced this week that it will be cutting 100 brands – around half of its portfolio – in a move to focus on only its most profitable products.
While that sounds like an enormous cull, P&G is not saying goodbye to half of its business. Only 80 of P&G’s 180 brands account for 90 per cent of revenues and 95 per cent of its profits. By concentrating time and resources on them, the company clearly believes it can grow more rapidly.
We explain the details of P&G’s decision in our news analysis here. Meanwhile, Mark Ritson sets out the case for regular portfolio pruning.
While everyone analyses how the cuts will affect P&G, there is another story here too – how being cut loose from a major organisation can drive smaller brands into growth territory or help them find new partners that can develop them better.
In 1999, Unilever announced a five-year plan to cut its portfolio of 1,600 brands to focus on 400 of its top brands. The strategy, ‘Path to Growth’, has become a textbook example of major portfolio pruning.
Unilever chose to focus on three core groups: ‘international’ brands that had worldwide appeal; ‘international brand positionings’ that had consistent positioning but different market variants; and ‘local jewels’ that are important in certain markets.
As part of its initiative, Unilever divested cosmetics company Arden for $225m to FFI. As a result, the business, which became Elizabeth Arden, and its products accelerated growth and became a megabrand. Its revenues in 2013 were $1.34bn with profits of $40.7m. Although there are weaknesses in its North American business, in the years since its divestment there have been strong innovations such as its high-end skincare brand Prevage.
P&G has its own version of this story too. When it divested a brand called White Cloud 20 years ago, it ended up in the hands of Walmart and became a billion dollar private label success story as Walmart itself grew rapidly.
Sometimes being part of a major corporate provides brands with scale and opportunities they could never achieve on their own. At other times, it means those brands will never be core enough to develop as rapidly and creatively as they could outside the organisation. Or another firm could spot the potential better.
So what will P&G divest? Rumours include brands from skincare label Zirh to Duracell. The good news is that divestment isn’t the end of these brands’ stories but the beginning.
