P&G rallies around core brands amid cost cuts

Illustration: Chen Xia/GT

Consumer products giant aims to revive sales

Household products giant Procter & Gamble Co (P&G) announced earlier this month that it would cut nearly 100 of its brands over the next two years, whittling its portfolio down to about 80 brands as it works to streamline operations, cut costs and bolster sales growth. If P&G follows through with these statements, it would result in the largest strategic adjustment in the company's history, according to media reports.

Although no specific names were mentioned, the company explained that it would eliminate brands whose sales have declined over the past three years. A.G.Lafley, P&G's chief executive, reportedly said the company's lucrative family, feminine and baby care businesses would lose fewer brands.

Discontinuing products or cutting jobs is nothing new for large multinational companies looking to reduce their expenses. But this time around, P&G is going a step further by zeroing in on brand management. If the new brand strategy pays off, other companies will surely look to P&G's example for guidance on how to strengthen their own results.

At present, P&G is still operating nearly 200 consumer brands in areas ranging from home cleaning to personal hygiene. This strategy of manufacturing and marketing such a wide array of items - many of which are used on a daily basis by millions of people around the world - has contributed greatly to the company's success over recent decades. Recently though, P&G executives have had to confront increasingly fierce competition from peers in the consumer staples sector as well as rising commodities costs and weakening sales wrought by a sluggish world economy.

In the fourth quarter of 2011, P&G's net profits totaled $1.69 billion, down 49 percent from the same period in 2010, a decline pinned on mounting raw material prices. Later, in 2012, the company rolled out a plan to save $10 billion by streamlining management and reducing expenses before 2016. Among the areas affected was the company's traditional media advertising budget, which fell by 2.4 percent year-on-year in 2012, according to media reports.

Additionally, more than 5,700 non-manufacturing employees had been laid off by the end of 2013, a thinning of the ranks which saw the company save nearly $1.2 billion, according to media reports. Statements made at that time described this staff reduction as a key measure in lifting operating efficiency.

Over recent months, the company's strategic realignment efforts have spread to brand management. For starters, the company announced recently that it had restyled its sales team as its brand management department, a step which represents the company's heightened focus on brand building. Meanwhile, executives based in the company's headquarters in Ohio have reportedly claimed certain managing rights which had previously been allocated to managers in the company's regional offices, a move which could be seen as step toward reorienting P&G around a more centralized vision.

P&G's move to rid itself of its weakest brands is a wise decision that fits within its larger cost-cutting strategy. Reports say that the company's top 80 brands generated $84.16 billion in sales revenue last year, while the other 100 brands brought in just $2.4 billion.

By unwinding its less successful brands, P&G can concentrate its funds, its market resources and the energy of its staff around its strongest brands, which will surely benefit the company's bottom line over the long run. Unburdening itself from brands that cannot pull their own weight is all the more important for P&G now as labor and resource costs mount amid intensifying market competition.

In fact, the company's biggest rival, Unilever, also announced at the end of last year that it would pare down its lineup of over 400 brands in efforts to reduce spending. In early July, the European giant announced that it had sold its Slim-Fast brand to US private equity Kainos Capital. During the first half, Unilever reported a 5.5 percent year-on-year decline in revenue due to its weakening performance in China and other emerging-market nations.

By all appearances, a harsher market climate is compelling the world's leading makers of consumer staples to circle their wagons around their most successful products. If P&G's plans to downscale its branding lineup prove to be financially successful, its rivals can be expected to follow its lead.