Plenty of room to grow in China

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How does Procter & Gamble build its business in China? One coif at a time. "When we first went to China in 1988, we didn't get one shampoo occasion a week," CEO A.G. Lafley told analysts on his last earnings conference call. "So you build it up to one shampoo occasion a week, and then if you can build it to two ... you've doubled the market. And we're sitting there with a 50-plus share if we can build it to three occasions a week." There are, after all, 1.3 billion heads waiting to lather, rinse, repeat.

China's economy last quarter grew at an annual rate of 11.3%, the fastest growth in more than a decade. But the China opportunity can, on occasion, create some challenges for P&G and rival Colgate-Palmolive. As our story in this issue notes, P&G's China shipments in this year's first quarter came in below expectations. Colgate's first-quarter volume in China was flat, and revenue in the second quarter rose just 4%.

P&G and Colgate were pioneers in this massive emerging market, but easy growth is over. The companies face increasing competition in China from other global package-goods sellers and from feisty local brands.

Fast growth from entering new cities is over. P&G has built a remarkable distribution system that reaches 2,000 cities and 11,000 towns and villages; it's picked off all of the obvious places.

Established marketers are building on ever-higher revenue bases, making it harder to keep up the growth rates they enjoyed early on. P&G's China sales rocketed from about $90 million in 1993 to "10-plus times that now," according to Mr. Lafley.

Marketers-and Wall Street-will have to get accustomed to some bumps in the road. But long-term opportunities remain wide open. P&G, China's largest advertiser, claims market-share leadership in China for categories including hair care, laundry, skin care and diapers, and it's locked in a battle with Colgate over toothpaste. But P&G's estimated per-capita sales in China are below $3. In the U.S., P&G per-capita revenue last year was $86. The China story is just beginning.
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