The FMCG giant will focus on 70 to 80 “core strategic” brands as it begins to discontinue and divest its weaker product ranges over the next 12 to 24 months.
Those brands – not specified in the announcement – will be organised into about a dozen business units under “four focused industry sectors”.
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. Net sales grew 1 per cent year on year to $83.1bn in the 12 month period. Net income rose 3 per cent to $11.6bn, missing analysts’ estimates.
Speaking on a call with analysts today (1 August) P&G CEO AG Lafley said: “[This strategy will create] a new streamlined P&G that will continue to grow faster and more sustainably, reliably create more value. [It will create] a much simpler, much less complex company of leading brands that are easier to manage and operate.”
Lafley used the example of P&G’s laundry division in the US, which used to have a portfolio of 15 brands just over a decade ago but now has just five. As a result of that simplification, P&G’s market share has increased, almost to 60 per cent again and its “share of value” is at its highest level ever based on the company’s own calculations.
“There’s a lot of evidence in a number of our business categories that the shopper and consumer really doesn’t want more assortment and more choice, they want efficient consumer response. There’s a lot of analysis that more does not drive growth and certainly does not drive value creation,” he added.
The changes will result in a major internal global restructure as the company organises itself into the streamlined business units. Some of that work is already underway. In June P&G axed the marketing director role across its entire portfolio of brands, changing the title to brand director, as it continued its strategy of simplification and focusing on its leading brands.
Lafley said “in an ideal world”, P&G would have taken this strategic decision at the depth of the financial crisis.
“We missed some of the opportunity, but frankly, when you’re in the middle of the financial crisis – watching oil approach $150 a barrel, chaos reigning around you in the biggest recession since the 30s – you don’t always have the time to think through or the resources to act on a transformation of this size and scope.
“I don’t see any reason to wait, or any virtue to waiting another minute. I don’t want to go out and spend $1bn round numbers, totally redoing our sourcing and supply chain in North America and do it for the wrong business, shape and size. I want to make sure we’re doing this for the businesses we think we are going to have and run for the next five years or so,” he added.
As a result of the changes, P&G will “overdeliver” on the five-year $10bn productivity plan it set out 2012 and will enable the company more of an opportunity to improve marketing and media efficiencies.
Over the past 12 months P&G says it continued to make efficiencies in marketing by employing a more optimised media mix across digital, mobile and search. The majority of those savings offset fluctuations in foreign exchange rates, but chief financial officer Jon Moeller said on the call the company is “perfectly happy to reinvest” marketing and media savings into marketing spend in other areas.
Moeller said: “We feel we can do that and continue to become more effective and more efficient. We are going through a transformation in [the marketing] industry and we want to take advantage of that while remaining fully in front of consumers with our marketing efforts.
“We look at reach, frequency, the targets we are reaching and conversion rates. We feel that is much more important than actual dollars spent. You should not mistake this for a second as a lack of willingness to invest in smart ideas to build.”