Premium Fails to Deliver for
P&G
In FY15, consumer products co lost market share in
8 segments, but it said its brands continue to perform in line with its
strategy
P&G's gamble on premium products seems to
have backfired. The world's largest consumer products company lost market share
in more than two-thirds of product categories in India during 2014-15 as
nimbler rivals with lower-priced alternatives found more takers.
The United States-headquartered company ceded
ground in products ranging from detergents, skin creams and shampoos to
disposable razors and sanitary napkins.
Experts said this resulted from P&G's lack
of innovation and focus on higher margins amid aggressive strategies adopted by
its rivals to increase their market share. “Rivals including Hindustan Unilever
(HUL) and Colgate have become very aggressive to defend their turf. With their
ever-expanding networks and widening product portfolio, it is now difficult to
match them,“ said Nitin Mathur, analyst at French financial services firm
Societe Generale, which considers P&G's market share loss as the main risk
to its target stock price.
Market Share Washout
It's no longer just HUL versus Procter &
Gamble (P&G) for the top slots in India's consumer products market. Kanpur-based
RSPL, the maker of Ghari, has overtaken P&G to be the second largest
detergent company in India. Ghari's share during 2014-15 was 22.8% while that
of P&G, which sells Tide and Ariel, slipped to 18%, industry executives
said quoting Nielsen data.
Ghari, armed with just its eponymous brand, is
fast narrowing the gap with HUL that sells three brands -Wheel, Rin and Surf
-and has an overall share of 34%. “What worked in our favour was our value
proposition backed with superior product,“ said RSPL president Sushil Kumar
Bajpai.
In shampoo segment, the issue wasn't just price.
While P&G re mained the second-largest shampoo maker in India, its share
came down to 27%, from 29% in the previous fiscal. HUL, the market leader by a
long mile, gained two percentage points to garner 46% market share during the
year. HUL's Dove brand, with 16.6% share, overtook P&G's Pantene that
slipped to 13.5%. A year earlier, Pantene was 40 basis points or 0.4 percentage
points ahead of the rival brand. According to experts, P&G lost market
share in this category because HUL launched nearly a dozen new variants of Dove
and Tresemme while P&G halted its innovation and increased prices by nearly
10% in a slowing market.
P&G does not offer cheaper options in either
detergents or shampoo.
“In the current environment, where both
premiumisation and trade-offs are being simultaneously made, a portfolio that
straddles the price pyramid can capture consumer trends. It allows the company
to be there whenever consumers migrate within price points,“ said Devendra
Chawla, group president for food, FMCG and brands at Future Group.
Perhaps the worst shock for P&G came in the
diaper category in which it has been the market leader for long.
Japanese firm Unicharm, which sells Mamy Poko
diapers, overtook Kimberly Clark nearly two years ago. With its share
increasing to 33% during the year, it is within striking distance of P&G's
Pampers that has 42% share, according to a recent Goldman Sachs report.
Mamy Poko diapers sell for ` . 4-6 lesser apiece
than Pampers, according to an executive of a leading supermarket. “In addition,
margins provided by Unicharm are significantly higher. This encourages traders
to push the Mamy Poko diapers more aggressively, said the executive, requesting
not to be identified.
A P&G spokesperson said the company
continues to be the market leader in most of the segments. “Our brands continue
to perform in line with our strategy, which is focused on profitable growth,“
the spokes person said, without commenting on the market share.
The data sourced from the industry, however,
shows that P&G gained share in just two segments, while it lost out in
eight key segments including pain relieving balm, conditioners and even
disposable razors, where it remains the leader.
Global Issues
The company's Ohio-based parent added to its
woes. Last year, it announced a focused portfolio with just seven categories,
representing 84% of sales and 85% of profit. The company identified top five
countries for each category that would deliver 54-98% of its total global
profit.With Indian business accounting for less than 3% of its global sales and
negligible profits, India could have been sidelined, experts said.
Nearly two years ago, P&G had planned to
expand in India, especially in the hinterland, and entered newer segments. That
has been reversed, said an executive, who did not wish to be named. “The global
company has asked its Indian unit to focus on existing urban markets that have
been traditionally stronger,“ said the official.
After the failure of its Oral B toothpaste
launched nearly two years ago, the company is not keen to enter newer
sub-segments in the shortterm, analysts said.
A year ago, P&G merged India, the Middle
East and Africa into one IMEA region as part of a significant reorganisation to
remove management layers and improve execution of its strategy. The move saw
marketers including Indian managers shift from P&G's regional businesses to
its four global business units.
Efforts to Turn the Tide
While HUL continues to run aggressive promotions
on all its detergent brands, P&G has finally reacted by cutting prices of
Tide Plus. It has slashed prices of Tide Plus by 1012% for packs of 500 gm and
1 kg, reducing the premium versus HUL's Rin to 12% from 17% earlier.
The parent company does not seem oblivious to
the challenges it faces in most developing nations including India. In an
investors call in November last year, CEO AG Lafley said, “On top of the bigger
developing market businesses and we've got some work to do. We've a pretty good
idea of what we need to do and it's just the matter of sort of lining it up and
getting the operating business plan executed market by market.“
In the past two years, P&G has invested over
` . 2,000 crore in India, especially to set up manufacturing units to reduce
dependence on pricier imports. However, big investments have taken a toll on
its profitability, with the unlisted P&G Home Products, which houses
laundry and shampoo brands, posting a loss of . 100 crore for 2013-14, on sales
of ` . 5,381 crore.` P&G in India -including two subsidiaries, Procter
& Gamble Health & Hygiene, which markets feminine hygiene brand Whisper
and Vicks anti-cold balm; and Gillette India, maker of razors and other shaving
products -had annual revenues of . 9,274 crore during 2013-14.`
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Sagar Malviya
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Mumbai:
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ET27MAY15
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