P&G India’s Focus on Margins Weighs on Sales
Co’s ‘strategically important’ segments post high single-digit sales growth in Jan-Mar quarter, but rest of local business shrinks 30%
Mumbai: Procter & Gamble’s efforts to push its margins wider by getting rid of products that it doesn’t consider strategic anymore are still weighing on sales, with its performance in India a telling example. But the maker of Gillette shaving products and Pampers diapers is confident that the short-term pain will give way to long-term gains.
In India, the world’s largest consumer products maker posted high-single-digit sales growth in the January-March quarter in segments that are strategically important for it, the company said. Rest of its local businesses, which account for about 15% of its overall portfolio, shrank 30%.
Even in the core areas of the business, the growth rate was slo- wer than the 15-20% expansion it had posted for most of the past decade. “This topline pain is worth it. We’re making significant progress in improving local profit margins, up about 700 basis points (7 percentage points),” chief financial officer Jon Moeller said in an investors call on Tuesday, after the Cincinnati, US-based company reported its fiscal third-quarter results. “We’ve gone from losing significant money in India to triple-digit profits in just two years.”
Details of its most recent profit and revenue numbers aren’t available for India, where P&G’s listed unit, Procter & Gamble Hy- URBAN RURAL
NORTH SOUTH EAST WEST giene & Health Care, is scheduled to release quarterly results on May 5. P&G’s three entities in India, selling products ranging from detergents and shampoo to razors and sanitary napkins, posted combined revenue of .₹ 10,347.7 crore in the fiscal year ended on June 30, 2015, up 12.7% from the year before.
Globally, too, P&G has been reorganising its brand portfolio, focusing on the core ones and selling dozens of unprofitable brands. For the quarter ended March 31, it posted a better-thanexpected profit, helped by costcutting and higher selling prices, but sales fell for the seven straight quarter.
P&G invested more than .₹ 2,000 crore in India in the past three years, mainly to set up manufacturing units to reduce dependence on pricier imports. The busines- GROCER CHEMIST PAN PLUS COSMETICS MODERN TRADE FMCG FOOD NON-FOOD OTC Figures for the period January - December 2015
P&G posted high single-digit sales growth in strategically important segments
ses that are either being fixed or exited in India include brands such as Oral B toothpaste, which has now been restricted for select markets, and Duracell batteries that was divested globally. Some analysts are unsure about its India strategy. Lakh Crore
“This topline pain is worth it. We’re making significant progress in improving local profit margins, up about 700 basis points. We’ve gone from losing significant money in India to triple-digit profits in just two years.” CFO, Procter & Gamble
P&G is shifting its focus away from small packs, which it previously used to compete aggressively with rivals, said an analyst. “It is definitely a big negative for the India business because India is easily the most attractive consumer market in the world. It is counter- intuitive, but China and the US are what matter to them and India business is small,” Edelweiss Securities associate director Abneesh Roy said.
Last year, two of its senior executives — managing director Shantanu Khosla and sales director Uday Bhaskar — quit the company. That was at a time when the company had lost market share in more than twothirds of its businesses in India.
After the current India chief executive, Al Rajwani, took over in July, the margins-over-sales approach has taken a back seat for core brands. For instance, P&G cut shampoo prices 25-30% and relaunched both Tide and Ariel detergents two quarters ago, a step seen as aimed at regaining lost market share from Unilever, which is thrice as big in India.
Globally, P&G has been reorganising its brand portfolio and has sold dozens of unprofitable brands FMCG MARKET BY CHANNEL GROWTH% CONTRIBUTION% 9.2 9.6 12.4 10.1 8.4 2.7 72 9 9 2 8
FMCG MARKET BY BASKET GROWTH% CONTRIBUTION%
9.2 9.7 8.8 8.4
51 42 7
ALL INDIA ALL INDIA