P&G is to sell more than half of its brands as the FMCG giant behind Gillette, Pampers, Old Spice and Tide looks to focus on its core brands in a cost cutting shift to “more efficient digital media”.
The move will see P&G focus on 70 to 80 “core strategic” brands as it begins to discontinue and divest its weaker product ranges over the next 12 to 24 months.
Those brands – not specified in the announcement – will be organised into about a dozen business units under “four focused industry sectors”. P&G has hinted that family, feminine and baby care business would lose fewer brands than its other four businesses.
Shift to digital… and an earthquake for agencies?
The move would have a major impact on agencies and technology suppliers that work with the FMCG giant.
P&G’s global ad spend was around $9.1bn in 2013, dropping from $9.7bn in 2012 billion. Part of the drop reflects the divestiture of the company’s pet-care business.
P&G Chief Financial Officer Jon Moeller said the company will continue cutting marketing spending this year as it continues shifting to more efficient digital media and improving the impact of its messages.
The sell-off will happen over the next two years and cut jobs to revive sales growth and save costs. The announcement sent its shares up as much as 4.3 percent.
P&G said the 70 to 80 “core” brands it will focus on accounted for 90 percent of sales and more than 95 percent of profit over the past three years.
Twenty-three of the brands have sales of between $1 billion and $10 billion.
P&G’s top 80 brands had sales of about $84.1 billion in 2013 while the other roughly 100 brands had sales of just $2.4 billion, according to Sanford Bernstein analyst Ali Dibadj.
The move comes more than 14 months after A.G. Lafley returned as CEO, and at the end of a fiscal year he described as meeting P&G’s financial commitments but falling well short of what it should have done.
“We delivered our business and financial commitments in 2013-14, but we could have and should have done better,” Lafley said. “If just a couple of businesses that missed their going-in operating plans had delivered, we would have achieved our initial leadership-team goals,” which includes 4% sales growth vs. the 3% organic growth reported for the year and 2% for the quarter, and improved market share rather than “roughly holding share,” as reported.
“Today we are announcing an important strategic step forward that will significantly streamline and simplify the company’s business and brand portfolio,” Lafley said. “We will become a much more focused, much more streamlined company of 70 to 80 brands.”