Analyst Insight by Chris Schmidt - Consumer Health Analyst
With the recently agreed-upon sale of some 40 beauty brands for US$12.5 billion to competitor Coty, Procter & Gamble has taken a major step toward completing its push to drastically shrink the number of brands it manages. The effort, led by second-term CEO AG Lafley, has pushed the company’s consumer health brands closer to the forefront of one of the world’s largest consumer packaged goods companies. However, given the industry’s fierce competitive landscape, challenging the upper echelon of consumer health’s leading companies remains a lofty goal.
Culling the heard: Procter & Gamble slims down to speed up
In mid-2014, after several years of slow growth led to a shakeup in the C-suite and the return of former CEO AG Lafley, Procter & Gamble announced that it would be selling up to 100 brands from across its bulbous portfolio. Ultimately, the company would seek to focus on 70 to 80 core brands that accounted for nearly all the company’s revenues and profit. Over the course of the last three decades, a spree of acquisitions – most notably 2005’s US$53.4 billion purchase of grooming and battery giant Gillette – have turned Procter & Gamble into one of the world’s largest consumer goods companies. In 2014, the company generated retail value sales of US$117.4 million across the Euromonitor Passport universe, with roughly 95% coming from the beauty and personal care, tissue and hygiene and home care industries. However, the company’s portfolio has changed drastically recently. The 2014 sale of Pringles chips/crisps (to Kellogg) and the pet food brands Iams, Eukanuba and Natura (to Mars and Spectrum Brands) drastically reduced its exposure to the packaged foods and pet care industries. Similarly, the divestment of its salon professional hair care and fragrance businesses to Coty (expected to close in late 2016) will significantly reduce its exposure to luxury goods.