In a move that could affect the revenue of the advertising agencies and huge drop in the world wide advertisement budgets, the FMCG major Procter & Gamble has announced a change in strategy that shook the advertising industry to a greater extend.
A huge reshuffle is set to take place at Procter & Gamble, the world’s largest consumer goods company, with up to 100 brands set to go, possibly within the next 12 to 24 months, although up to 80 key brands will be retained
The brands to be eliminated could account for more than $8bn in sales annually, said chairman and CEO, A.G. Lafley on the company’s earnings conference call today.
The consumer brands it is looking to focus on generate around 90 per cent of the company’s sales and 95 per cent of its profits.
Procter & Gamble – whose top brands include Tide, Gillette, Gain and Duracell – will restructure to focus on its leading 70 to 80 brands, said Lafley and planned to “divest, discontinue or merge “ more than half of its brands globally”
The move comes more than 14 months after Lafley returned as CEO, said AdAge. It comes after a fiscal year which Lafley described as meeting P&G’s financial commitments “but falling well short of what it should have done.”
He declared, “We delivered our business and financial commitments in 2013-14, but we could have and should have done better.
“If just a couple of businesses that missed their going-in operating plans had delivered, we would have achieved our initial leadership-team goals,” which includes 4 per cent sales growth vs. the 3 per cent organic growth reported for the year and 2 per cent for the quarter, and improved market share rather than “roughly holding share,” as reported.”
Lafley went on to say: “Today we are announcing an important strategic step forward that will significantly streamline and simplify the company’s business and brand portfolio,”
“We will become a much more focused, much more streamlined company of 70 to 80 brands.”
The company’s marketing services agencies will need to be prepared for a big crunch.
“It will mean divesting, discontinuing or finding partners for another 90 to 100 brands in P&G’s current portfolio, which also implies major consolidations of agency and other marketing-services brand assignments in the future,” reported AdAge.
Lafley didn’t provide a timeframe for how long the restructuring would take, other than to say it’s “more time than we would like.”
Chief financial officer Jon Moeller, estimated it would take 12 to 24 months to complete the process. “The timing on this will be governed by our ability to create value,” he said.
“In an ideal world, we would have done this in the depth of the financial crisis,” Lafley sIad . “I don’t want to wait another minute.”
Those 70 to 80 “keeper” brands account for 90 per cent of company sales and over 95 per cent of profit over the past three years,. Lafley said. That still leaves room for elimination of brands accounting for more than $8bn in sales annually.
“We will harvest, partner, discontinue or divest the balance of 90 to 100 brands,”Lafley said. On the whole, the brands in question have seen sales declining 3 per cent and profits declining 16 per cent, he said, and have margins less than half the company average.
The move comes as P&G has cut ad spending for the first time in years, with reported ad spending as a share of sales falling half a percentage point to 11 per cent in the just-completed fiscal year, Moeller said on the company’s earnings-day media call.
That takes P&G’s global ad spending to around $9.1bn from $9.7bn last year. Part of the drop reflects the divestiture of the company’s pet-care business, announced in April and mostly completed today.
Moeller said the company will continue cutting marketing spending this year as it continues shifting to more efficient digital media and improving the impact of its messages.
P&G reported that its net sales grew by one per cent to $83bn for the year ending 30 June. Net income rose 3 per cent to $11.6bn while revenue fell to $20.16bn
