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%

The Economic Times - - Brands: Creating Desire - Neha.Tyagi2@ times­group.com KATHRYN ABEL SOURCE:

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

Busi­ness Re­cast

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

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.