P&G Plots Growth Path Through Services

In Brand-Saturation Age, Major Marketers Turn to Franchising and Other Models

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BATAVIA, Ohio (AdAge.com) -- Procter & Gamble Co. got to be an $80 billion company and the world's-largest marketer almost entirely by selling goods, but it's increasingly looking to services ranging from concierge physicians to car washes and dry cleaners to fuel its thirst for growth.

MR. CLEAN: P&G now has 15 car washes in Cincinnati and Atlanta and plans to expand.
MR. CLEAN: P&G now has 15 car washes in Cincinnati and Atlanta and plans to expand.
It's a big thirst. When every percentage point of growth now requires around $800 million in new sales, P&G can't afford to leave many stones unturned, including service and franchising models. At the same time, the challenge in this age of brand saturation -- to create growth beyond simply selling more stuff -- is a problem other marketers will increasingly face if the economic recession indeed moves people away from the conspicuous consumption that marked better times.

Chairman-CEO Bob McDonald sees the service mentality increasingly infusing what his conventional package-goods brands do.

"I think service is yet an untapped area for us," Mr. McDonald said in a January interview. "We're active in franchising now with Mr. Clean car washes and Tide Dry Cleaners. MDVIP [concierge physician service] is a service operation. But we're also working on services on our existing brands, for example, where you walk up to the shelf, take a picture of the UPC code on your phone, and you can download information about the ingredients in that product, which you as an environmentalist may care about."

P&G is far from the only mega-marketer increasingly expanding its business model in a search for growth. P&G's biggest customer, retail behemoth Walmart, last month bought video streaming startup Vudu and last week announced it opened its 1000th MoneyCenter check-cashing and bill-payment outlet and plans to open another 500. Google, when it's not organizing all the world's information, is entering all the world's digital and media categories. And Apple, having become the world's-largest music retailer, looks to become a dominant presence in book and magazine publishing as well via the iPad.

Curious bets
Mr. McDonald said service is "part of our broader purpose," noting, "It's fair game for us, and we need to learn more about it. We've got to grow; that's the main thing."

While being big has the drawback of requiring big numbers to generate growth, he said, it also means P&G can afford to "place some bets that might not be so obvious from the outside."

One of those is MDVIP, a concierge-physician service in which participating primary-care doctors cut their patient loads roughly 75% to 600 patients or fewer. They provide premium service that includes annual hourlong physicals, electronic medical records on a CD, personal websites and preventive-care plans and the promise of on-time appointments for a $1,500 to $1,800 annual fee.

P&G bought 49% of MDVIP in 2007 as it looked to explore new avenues in health care as its own and other prescription-drug businesses slowed. Late last year it bought the other 51%, so far making a profit on the investment, Mr. McDonald said, though P&G is not really interested in the short-term trade.

HOW MUCH DOES IT COST?
Franchisees of Procter & Gamble's Mr. Clean Car Washes need a $2 million to $4 million total investment and net worth of at least $2.5 million. Tide Dry Cleaners require investments of $652,000 to $897,000 and a net worth of $1 million. Both appear pricier than some other operators, though with far more involved service propositions.

By comparison, Burger King requires a $1.2 million to $2.2 million investment for franchisees and $1.5 million in net worth. P&G's royalties of 6% to 7% and marketing fees of 5% of gross sales are both north of Burger King's 4% and 4.5%, respectively.

"If you're serious about being in the health-care business, what better learning lab is there than a concierge medical practice where you learn about everybody's aches and pains, and you work on developing the future of medicine, which is consumer choice and prevention rather than cure?" Mr. McDonald said.

Growth
P&G put Dan Hecht, who had been VP-North America of the pharmaceutical business the company divested last year, in charge of MDVIP as CEO. MDVIP is still relatively small, with 350 participating physicians among 250,000 primary-care doctors in the U.S. But at 115,000 patients, its count has more than doubled in three years.

For Mr. Clean, P&G now has 15 company-owned and franchise car washes in Cincinnati and Atlanta and plans to expand franchises in those cities, Illinois and Texas. Tide Dry Cleaners, now in Kansas City, Mo., recently started seeking franchisees in Cincinnati, Dayton, Columbus and Lexington, Ky.

P&G's service concepts aren't for the faint of heart or light of wallet. All three are premium propositions both for consumers and franchisees alike at a time when credit for small businesses remains tight. But in an e-mail, Nathan Estruth, VP of FutureWorks, said P&G has gotten considerable interest in franchise opportunities in all the markets it's approaching.

Like concierge medical care, the car washes and dry cleaners are high-service concepts, too. Mr. Clean Car Washes offer a wide array of detailing options -- Febreze odor eliminators, oil changes and other vehicle maintenance in many cases -- and lounges with big-screen TVs, Wi-Fi and areas where kids can remotely spray cars with suds soakers. Tide Dry Cleaners offer drive-through concierge service, customer lockers, on-site tailoring, 24-hour drop boxes, a customer-rewards program and a green-positioned cleaning process.

It takes scale, strategy and commitment

Procter & Gamble is no stranger to services. A decade ago, the company tested such projects as Juvian, a high-end fabric care "spa," and Culinary Sol, a cooking school. It even tried business consulting, seeking to license P&G marketing tips via a venture dubbed Emmperative.

TIDE: P&G has moved beyond the one- and two-store pilot stages of earlier experiments with its Tide-branded dry cleaners.
TIDE: P&G has moved beyond the one- and two-store pilot stages of earlier experiments with its Tide-branded dry cleaners.
All those ultimately got shuttered or sold. But there's a difference this time around for P&G in terms of scale, strategy and commitment.

In the case of Tide and Mr. Clean, P&G is putting the power of established half-billion-dollar or billion-dollar package-goods brands behind service concepts. And all three of the service concepts have moved well beyond the one- or two-store pilot stage where Juvian and Culinary Sol ended.

Mr. Clean bought an Atlanta car-wash chain and put its owner, Bruce Arnett Sr., in charge of the entire unit as CEO. As such, Mr. Clean already ranks as the No. 22 chain in the highly fragmented car-wash industry, and, by P&G's reckoning, the largest car-wash franchiser.

The payoff is potentially huge. Professional car-washing is a $20 billion-plus industry by P&G and industry estimates, with dry cleaning estimated at $9 billion. And the figures for MDVIP, its concierge physician service, are equally large: People make more than 400 million visits to primary-care physicians each year in the U.S., per the Centers for Disease Control, which, at an average cost of $100, would put that market at over $40 billion.

Capturing 1% of the revenue from those markets would give P&G a $700 million business that approaches adding a percentage point to the corporate top line.

Today, MDVIP alone, with 200 employees, apparently generates $170 million to $200 million in membership fees from patients to member doctors, though it's unclear how much of that flows through to the company. MDVIP offers physicians research, technological operational and marketing support as well as insurance and regulatory services, but declined to say exactly how it makes money.

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