Procter & Gamble Co.expects to be finished shedding weight by the end of fiscal 2016, left with 65 leading, geographically focused brands in categories “where the size of prize and profitability of winning are the highest,” CFO Jon Moeller said Feb. 19 at the Consumer Analyst Group of New York conference.

The firm provided fresh insight into its portfolio-streamlining initiative at the event while highlighting successful product innovations and marketing initiatives that are driving growth in core brands and helping to offset “the largest earnings headwind from foreign exchange in P&G’s history.”

P&G has projected divesting, discontinuing or consolidating around 90 to 100 brands since it announced its simplification plan in August 2014, but the company has been less clear about where it expects to end up.

Now Moeller puts the number of brands being sold at 100, on the upper end of the company’s forecasted range, and revealed that 65 leading brands would remain in 10 categories “that are structurally attractive and that play to P&G's core strengths of consumer understanding, innovation, branding, go-to-market and scale.”

According to the exec, the firm aims to have negotiated and announced the entire program “or at least the large components” as early as this summer and to have closed the program by June 30, 2016, the end of its fiscal year, “enabling us, worst case, to head into fiscal 2017 with a new portfolio fully in place.”

Some of the firm’s divestitures have been widely publicized – the sale of Duracell to Warren Buffett’s conglomerate holding company Berkshire Hathaway for example, expected to close in the second half of fiscal 2015, and skin-cleansing brands Camay and Zest (outside of North America) to Unilever PLC, announced in January Also see "In Brief" - HBW Insight, 5 January, 2015..

Other transactions and consolidations have been quieter, including the reported sale of the Naomi Campbell fragrance brand and the firm’s decisions to let its Avril Lavigne and Puma fragrance licenses elapse, along with its licensing deal with multiethnic beauty, skin-care and fragrance maker Iman Cosmetics.

According to a Feb. 20 note from Trefis analysts, P&G has provided updated estimates regarding revenue impact, now expecting the streamlining to result in a 14% reduction in annual sales when all is said and done, versus the 10% decline originally projected.

However, P&G has stressed that its divestiture focus is on underperforming brands that represent less-than-ideal fits for the company. Moeller reiterated that “the businesses we are exiting are not bad businesses; most simply do not play to our strengths.”

As such, brands on the firm’s chopping block have experienced dropping sales at low single-digit rates over the past three years and double-digit declines in before-tax profits, the CFO noted. By selling them off, “we eliminate 60% of the brands and the complexity they create while retaining 94% of our [before-tax] profit. That’s a good trade,” he said.

Seven of the 10 categories in which the remaining brands will compete represent 84% and 85% of P&G’s sales and profit, respectively, according to Moeller, who identified P&G as the leader in seven of the 10 categories and No. 2 in the other three.

Moreover, the portfolio that will emerge will be focused geographically, he said, with the top five countries for each category delivering between 54% and 98% of P&G’s total global profit, the exec said.

Moeller summarized: “The businesses that will remain on our portfolio fit very well within our core capabilities. We understand the consumers of these businesses. These businesses fit our brand and product model, are sold primarily in our core channels of distribution and we can source them more effectively and efficiently than third parties. These businesses have proven track records,” he concluded.

Gillette, Hair-Care Brands Among Core Keepers

Ali Dibadj, a market analyst with Sanford C. Bernstein, speculated in 2014 following P&G’s streamlining announcement that the firm likely would hold onto Gillette, Pantene, Head & Shoulders and Olay ([A#02140901004]).

At the CAGNY conference, Chairman, President and CEO A.G. Lafley cited them in his discussion of the 65 core brands P&G will focus on going forward.

The exec highlighted Gillette’s FlexBall technology, launched in April 2014 under the male grooming brand and recently extended to its women’s Venus line, as a “big obvious consumer-preferred” innovation that is driving market-share gains for the firm.

With its point-of-market-entry sampling program for Gillette Flexball razors, the firm expects to reach more than 80% of 18-year-old men in the U.S., or roughly 2 million, by the end of fiscal 2015, according to Lafley.

“We are driving Gillette's subscription via our retail partners programs, as well as our own Gillette shave club. FlexBall is driving both trade in and trade up. It is the first system that is attracting a meaningful number of disposable users to try,” he said.

Lafley noted that the firm also is making “steady progress” in hair care, growing share in the U.S. and China with Pantene and Head & Shoulders driving gains on “better branding, consumer-preferred products, better overall marketing and sales execution.”

Both brands boast a strong pipeline of product innovation coming to market now and in the years ahead, Lafley said.

While Olay’s turnaround is still a work in progress, the CEO maintained that the brand’s problems are well-defined and dwarfed by the opportunities before it.

“We are getting very clear about what we do well in skin care and where and how we should play. … We are clarifying brand and SKU architecture, ensuring the core boutiques receive priority attention,” Lafley said.

He characterized Olay as “still an incredible asset, the leading facial moisturizing brand equity in China and the U.S. with a very strong product lineup [and] still significant performance advantages.”

Investment behind the brand is yielding positive results, Lafley said. P&G attributes sequential value-share gains in the U.S. facial moisturizer category to Olay Regenerist Luminous launches designed to brighten the complexion, fade dark spots and even skin tone.

“This is all taking a lot longer than any of us would like, but we are making progress with each improvement, in each new cycle of brand product marketing and sales planning.”

Pricing and attuning Olay to consumer needs in markets outside the U.S. remain challenges P&G is working to address, company leadership indicated in its second-quarter earnings call in January Also see "P&G Portfolio Trimming ‘Full Steam Ahead’ As Currency Effects Pummel Profit" - HBW Insight, 29 January, 2015..

Banking On Digital Marketing

P&G’s leadership also spoke on cost-cutting measures being implemented and opportunities for increasing the firm’s productivity.

Like its competitors, P&G is shifting more advertising to digital media, “where consumers are spending most of their time,” Moeller said.

He pointed to the “Like A Girl” campaign from its feminine products brand Always as an example of advertising that has been made “more efficient and effective” by optimizing digital opportunities.

Part of its mission to “empower girls everywhere,” the widely talked-about Always “social experiment” explores how many prepubescent girls perceive the phrases “run like a girl,” “throw like a girl” and similar variations in a positive light before cultural conditioning convinces them of the expressions’ derogatory implications.

While the campaign includes a traditional TV spot that aired during the Super Bowl Feb. 1, the power of social media and P&G/Always’ digital platform was quickly apparent in the hours and days that followed. Moeller noted that “Like A Girl” was the most tweeted ad, with nearly three times more tweets than the runner-up, and the most discussed ad on Facebook, three times higher than No. 2, the exec said.

“In just over one week, this spot generated nearly 4.5 billion free impressions and was seen by over 50% of target consumers – women between the ages of 12 and 24. We are converting this into business results,” Moeller said, noting that Always pads weekly dollar sales were 6% ahead of average.

We achieved in-store activation at retail customers representing about 80% of North America sales, resulting in a high single-digit sales increase with some key retail partners and Always pads weekly dollar sales were up 6% ahead of the average week this fiscal year.

In addition to strategically reducing costs, P&G is working to offset unfavorable currency effects that have pummeled its recent quarterly results via pricing adjustments and new manufacturing bases.

According to Moeller, the firm is currently constructing 25 new manufacturing plants and production modules, 18 in developing markets, which should become operational over the next few years. “This will not only help our foreign-exchange exposure, but will drive manufacturing, transportation and customs and duty savings, thereby increasing developing market profitability,” he said.

Slimmed-Down P&G To Consist Of 65 ‘Leading Brands’ By FY 2017

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