Happy New Year. Now get cracking: We outline challenges for 2013 and offer up some predictions
Restructuring, and its associated pain, continues
Restructurings keep landing like waves on the packaged-goods beach, washing away marketing staff in the process.>
First Procter & Gamble Co. in February delivered its long-awaited plan to cut costs, promising $10 billion in savings -- $1 billion of it in largely non-advertising marketing costs -- over five years. That came in response to slowing sales, disappointing earnings and share losses to competition.
Competitors chimed in with their own restructuring plans by October, with Colgate-Palmolive Co., Kimberly-Clark Corp. and Energizer Holdings announcing plans to reduce headcounts by thousands.
Then P&G, having already launched plans to cut nonmanufacturing staff, including marketing, 10% by June 30, said it will keep cutting overhead staffing 2% to 4% annually over the next three years. With P&G under pressure from activist investor Bill Ackman to keep cutting, competitors are following suit to stay competitive on price and marketing spending.
Warning: Price war approaching
The big question is how marketers will use the savings reaped from thinning their ranks. "Are they going to invest in advertising and innovation, or is it going to be a bloodbath from a pricing perspective?" asked Sanford C. Bernstein analyst Ali Dibadj. He expects the latter. So far, P&G has used restructuring savings for marketing spending rather than taking it to the bottom line. But with slow growth and a shrunken middle class in the U.S., it no longer seems that P&G, which has long had the priciest brand portfolio in its industry, can maintain the price gaps it once had. If P&G looks to narrow price gaps or move more aggressively into value-price lines, competitors may cut prices accordingly. With the same pressure since 2008, the industry has avoided a price war. Now, it's less clear that peace will hold.
Fewer, bigger everything
While some packaged-foods players still talk about sheer numbers of launches, such as Kraft recently announcing a rollout of more than 40 products and General Mills touting 100, "fewer" and "bigger" are the words for big household and personal-care players.
Unilever has been talking "fewer, bigger" innovations since Paul Polman took over as CEO in 2009. Now P&G, under Chairman-CEO Bob McDonald, is talking largely the same talk as the company has looked to pare smaller launches in favor of focusing on its top 20 innovations. Mr. McDonald said he also wants more "discontinuous" innovations rather that inventing or reinventing categories.
Indeed, focus generally is the new black in CPG, particularly at P&G, which has also de-emphasized its giant grid of 900-plus category-country combinations to focus on its 40 biggest businesses and 10 biggest countries. And since they now have fewer marketers, focusing on "fewer, bigger" innovations may be inevitable for CPGs.