Amid turmoil that saw P&G miss earnings targets twice, its stock price plummet and its CEO depart, P&G's competitors have been gaining ground in most categories. Now, as the company looks to boost earnings with price increases, competitors under less pressure from Wall Street are slow to follow.
Compared with rivals, P&G's fiscal first-quarter performance under new
President-CEO A.G. Lafley wasn't pretty. In that quarter, ended Sept. 30, P&G's sales were up only 4% to $10 billion, excluding currency effects. And although P&G set a goal to make growth of its top 10 global brands a priority, the company gained market share for only three of those brands-Tide, Charmin and Pringles.
Its hard times, meanwhile, have meant glory days for competitors. In the third quarter, Kimberly-Clark Corp. saw sales increase 10% to $3.5 billion before currency effects, while Colgate-Palmolive Co., which competes against P&G in oral care, personal-care and cleaning products, posted a 7% sales jump to $2.4 billion, and North American sales up 10% during the same time frame.
Clorox Co. saw 6% growth in the North American household products business, where it competes directly with P&G. But declines in Clorox's Glad business dragged down the company's overall sales growth to 5%.
Even Unilever, which in recent years has seen sales growth lag behind P&G and has similarly lost share to smaller, more focused rivals, saw sales increase 5% globally to $11.7 billion in the third quarter. Fortunately for Unilever, sales increases in categories where it competes against P&G-hair care, deodorants and laundry detergents-offset problems in its ice cream business globally.
P&G's outlook for its current quarter is worse. Chief Financial Officer Clayton Daley told analysts in October that overall volume would decline 1% to 2% and sales are expected to be up only slightly. Mr. Daley blamed tough comparisons with last year's second quarter, when P&G rolled out its Swiffer and Dryel brands, though he said P&G volumes would still be up compared with last quarter.
One problem P&G faces is price, as competitors drag their feet or resist matching increases the company took earlier this year in laundry detergents and paper products to offset rising energy and paper pulp costs.
While Kimberly-Clark matched P&G's price increase on diapers earlier this year, achieved through reductions in package counts, Kimberly-Clark, Georgia-Pacific and other competitors have yet to match P&G price increases in paper towels and bath tissue, retailers said. And while such rivals as Playtex, Kimberly-Clark and Johnson & Johnson have matched P&G's price increases in tampons, they've yet to follow suit in sanitary pads and liners.
In laundry detergent, Unilever has resisted following P&G's price increases for more than six months, though the company is expected to raise prices to retailers in January.
Mr. Daley called the competitive response "price scraping," and said it's been common when P&G has raised prices in the past. Overall, he expects competitors to match P&G price hikes in most categories. The company rolled back slightly more than half its 9% price hike on paper towels in November, and Mr. Daley said he would be watching other categories closely.
"We have a firm policy that we will not allow our competitors to undercut us on price and effectively buy market share," Mr. Daley said.
Another problem for P&G is that Kimberly-Clark and Georgia-Pacific produce some or all of their own paper pulp, shielding them from cost fluctuations. P&G produces none of its own.
Unlike P&G, its chief competitors-Kimberly-Clark, Unilever and Colgate-Palmolive-have hit analysts' earnings estimates consistently in the past year and haven't pledged to keep marketing spending proportionate with sales, giving them more flexibility in cost-cutting and less pressure from Wall Street.
Adding to the tension, Colgate is preparing major product-launch strikes against P&G's Crest in oral care. Colgate, whose U.S. sales increased 6.1% in the four weeks ended Nov. 4 and 8.3% in the 13 weeks ended Nov. 4, according to J.P. Morgan Securities, is following the launch of its Colgate Sensitive toothpaste earlier this year with the launch of Colgate Total Whitening toothpaste this month. Y&R Advertising, New York, handles.
Kimberly-Clark is trying to exact retribution against P&G in feminine products. As the company struggled to integrate Scott Paper Co. from 1995 to 1998, P&G took the offensive. Its Always brand went from trailing Kimberly-Clark's Kotex, 31.8% to 32.5% in market share in 1995 to leading by 12.7 points-42.1% to 29.6%-in 1998, according to Information Resources Inc.
Kotex narrowed the gap to 10 points last year with product improvements and new advertising from Ogilvy & Mather, New York. Now, as P&G wrestles with its own internal problems, Kotex is on the offensive again, with its new global "red dot" ads for the brand. The ads have fueled a 20% sales increase for Kotex in Colombia, where they first launched last spring, and Kimberly-Clark is hoping for strong results in the U.S., too.
"I'm not going to pretend to believe that we'll see a 20% increase here," said Tim Lehman, president-North American Feminine Care at Kimberly-Clark. But he adds: "Certainly, I'm expecting the campaign will be important to us both in the short-term and, importantly, building the brand franchise long-term. The reality is that Kotex is still viewed as something of an older brand. We need to change that, and that's one of the keys of this campaign."
While competitors like Kimberly-Clark will likely make short-term gains while P&G tries to regain its bearings, Ken Harris, partner with the package-goods consulting firm Cannondale Associates, Evanston, Ill., doubts they'll gain long-term advantage.
"I'd bet on the jockey in this one," Mr. Harris said. "Procter is too good of a company to struggle forever. And just like Kimberly-Clark came back [from problems in the aftermath of the Scott deal] so will P&G."
Burt Flickinger, managing director of Reach Marketing, Westport, Conn., believes much of P&G's share erosion stems from long-term decisions that may only be exacerbated by Mr. Lafley's focus on the company's 10 leading global brands.
"It would have been unthinkable to say over the 1980s and 1990s, but P&G's competitors clearly have the initiative," Mr. Flickinger said. "P&G certainly lost its way with what used to be a very strong portfolio of B brands as P&G has overly resourced its aircraft carrier or A brands and grossly undersupported its allied brands."
Mr. Flickinger points to such brands as Ivory, once P&G's flagship, which now is struggling in both personal and home care, along with household-cleaning brands and second-tier brands as Cheer in laundry detergent. Even if P&G succeeds with such leadership brands as Tide, Pantene and Pampers, it could still lose share as second-tier ones in the same categories lose ground, he said.
One factor that figures in P&G's favor now, however, is a much stronger new-product pipeline than in years past, said Andrew Shore, analyst with Deutsche Bank Alex. Brown. P&G has 50 major products in its pipeline-including new brands and major line and brand extensions-for the next two years, he said, about double what it had in years past.
"Despite weaker-than-expected earnings quality [in the last quarter] and a less optimistic outlook in terms of volume growth [in the current quarter], we continue to believe that stability is returning to Procter & Gamble," Mr. Shore wrote in a recent report. He added P&G's recovery won't be "a quick fix," but he expects market shares and profit growth to increase early next year.
For his part, Mr. Lafley has said turning the tide at P&G will take time. "There's nothing like adversity in life to give you focus," Mr. Lafley told analysts in September. But he added: "It's going to take some time before this company is hitting on all cylinders again."