P&G has already announced plans to rid itself of non-core brands, but the scaleback now looks deeper and broader than originally thought.
The Gillette, Olay and Pantene owner says it intends to sell up to 100 of its poorer-performing brands in an attempt to boost profits. On the beauty front, fragrance brands like Escada, Naomi Campbell and Puma look vulnerable, said an ex-P&G financial insider, while Nicky Clarke, Graham Webb and Fekkai also look exposed to a hair care cull.
“A lot of people are worried about their jobs. Basically, a couple of things are going on here. P&G is best at shipping truckloads of detergents and beauty products with full pallets to Sainsbury’s or Wal-Mart. All the other stuff they’ve tried, like Wella, they’ve tried to get good at. But essentially they’re very different business models.”
He went on: “Its [P&G] rationale is that if it is not going to give this brand enough attention, then it shouldn’t be owning it.”
Brands such as Vidal Sassoon and Hugo Boss look safe, said the source. The move by P&G Chief Executive Officer AG Lafley will likely leave the FMCG titan with just 80 brands or so left. In reality, those 80 brands are already responsible for 90% of global sales, as well as profits. “I hope in July we’ll be able to turn all the cards over, or most of the cards over,” Lafley said. “We have a lot of interest in the assets that we’re going to ultimately dispose of, assuming we get the value creation we want.”
Providing his opinion on the current situation P&G faces, Jamie Rosenberg, Global Personal Care Analyst at Mintel, said: "We’re seeing a general trend in the CPG world where companies that diverged across a wide variety of product categories during a period of rapid economic expansion are now converging around what they've identified as their core strategies. Managing unwieldy portfolios in a more challenging environment has forced competitors to reassess their strategies and more succinctly define what their company stands for."P&G has expanded faster than most CPG companies. It’s much publicised Connect and Develop strategy benefited from a diverse portfolio and much of P&G’s innovation success has come from transferring materials, product forms, formulations and even marketing techniques across product categories. While there’s a lot of analyst and investor pressure for P&G to trim its portfolio, we should also expect the brands that P&G is retaining to benefit from the intellectual property and other in-market experience derived from the divested brands (in addition to the revenue from selling these brands)."
He observed: "As indicated by this example, there’s likely to be many win/win transactions for P&G and its buyers. There may be some orphaned brands that fall by the wayside, but most of the announced and speculated divestitures are either strong brands that no longer fit P&G’s broader strategy or heritage brands with renovation potential. As far as the urgency, is concerned, P&G has been viewed as bloated for several years, and a move like this is fairly essential to restore investor confidence."
