Can P&G Turn The Tide?

The worlds largest consumer products company wants to be as big as rival Unilever currently is in India in five years. But getting there will be difficult with leadership positions in fledgling categories and a glaring absence in the critical ones

IN APRIL 2011, Deborah Henretta, group president for Procter & Gambles (P&Gs) Asia business, visited India with an eye on the countrys growing urban middle class. She was also here to check the progress on another front: the status of Project 2-3-4, the worlds largest consumer products companys latest gambit to pry open the Indian market. By 2015, P&G wants to double the number of Indians who use its products, treble per capita spending by Indians and quadruple net sales of its India operations. Thats in line with the Cincinnatiheadquartered parents global vision of shifting the focus away from saturated western markets. Developing economies account for just 30% of global sales. On the other hand, Unilever gets more than half of its revenues from India, Brazil, Indonesia, South Africa, China and Vietnam. P&G global chairman & CEO Robert McDonalds stated goal is to garner 800 million new customers by 2015, most of them from Asia and Africa. The target consumer in these markets is those earning less than 100, or $2, a day. If P&Gs three companies P&G Home Products (PGHP), P&G Health & Hygiene (PGHH) and Gillette India do manage a four-fold increase in the top line, that would take their collective India revenues up to roughly $4 billion in five years. In India, P&G claims to be the second largest fast moving consumer goods (FMCG) company, excluding foods, with a turnover of over $1 billion the largest of course being HUL . Of the 11 categories we play in, we are leaders in six healthcare, blades & razors, feminine care, baby care, anti-aging skin care and air care. We have consistently achieved more than 20% growth year on year and our business has grown 10 times over last eight years says Shantanu Khosla, who heads P&Gs India office. Thats no doubt impressive except for one problem. Most of the categories P&G dominates are still small. In the segments that matter, like detergents and hair care which account for Rs 18,000 crore or a little over half of the home & personal care segment (HPC) HUL is top dog (See chart). Traditionally P&G, globally as well as in India, derived its bread and butter from premium brands like Ariel and Whisper Ultra. But if Asia and Africa have to contribute more, that has to change. It is beginning to in India, where P&G is targeting consumers across the pyramid, from the apex to the bottom. The overall objective: grow these categories even as it stays the leader in them. Example: Four variants of feminine hygiene product Whisper can be found on Indian shop shelves: Whisper Choice at the mass end; Whisper Maxi in the mid-segment; Whisper Choice Ultra for the aspiring looking to uptrade from the low-priced segment; and Whisper Ultra, the premium brand. Such segmentation has resulted in the contribution of feminine hygiene to overall sales more than doubling from 25% in 2005 to 58% in 2010.

However, a section of analysts believes that P&Gs India portfolio is a hotchpotch of brands. Whilst the three-company operation does have a presence in big categories like laundry and shampoo and in assorted, minuscule segments the glaring gaps in its Indian portfolio include toothpaste (a 3,000 crore market) and soaps ( 7,000 crore). "P&Gs Tide detergent is a great brand but HUL has put its entire portfolio out there and taken up consumer mind space, says Damodar Mall, director, food strategy, Future Group. So whilst P&G has its great global brands as number one in India, such as Whisper, Olay and Duracell, the company has to strengthen its portfolio further and get many more brands into the country. Its commitment to India has to go up," adds Mall. Indeed, there is a feeling that P&G is more committed to China a decidedly bigger operation at over $5 billion in revenues and into which Cincinnati will pour a billion dollars over the next five years. There are analysts who believe that in India P&G has left it for too late. Try telling that to Khosla. We have been in India for about 25 years. We expect to be in India for another 100 to 200 years, he declares. Khosla's short point: most of the categories P&G is present in India are small but, over time, as disposable incomes and penetration increase they will become mass markets brands. "I have always felt that `P&G operates only in a certain segment its a perception that has never been completely accurate, adds the country head. Heres why, according to Khosla: The most deeply penetrated cold medicine in rural India is Vicks. Ariel in its sachet forms is one of the most penetrated detergents in rural India. Khosla then goes on to list out innovations. The Gillette range of shaving equipment, for instance, extends from Mach 3 Sensitive at the top end to Mach 3 in the regular segment and Gillette Guard at the mass end. If P&G has to gain critical mass, it has realised it has to be in every place HUL is in including deep in the hinterlands. That may explain why, in the short to medium term, P&Gs focus is on driving distribution deeper into the villages than on launching new products and entering new categories. According to Anand Mour, vice president, Indiabulls Securities, P&G has doubled its distribution reach over the past couple of years. And it does not lag HUL by much. Currently P&Gs direct reach is 1.3 million outlets as compared to HUL, which has increased its direct reach from 1.3 million to 1.6 million outlets, wrote Mour in a recent report. We believe that P&Gs aggressive push in India will also support PGHHs revenue growth as feminine hygiene where PGHH has the Whisper range offers huge opportunity with penetration currently less than 20%." Internally, P&G has classified the domestic market into three. India 1 comprises some 8.5 million households of affluent Indians. But if P&G has to make it in India it has to crack open the other two Indias. India 2 is the rest of urban India that consists of 56 million households. And India 3 is the rural market thats made up of another 130 million households. P&Gs goal would be to score wins in all three Indias. For instance, the plan is to double revenues in India 1 from key categories like detergents, hair care and feminine hygiene to $250 million by 2015. If that sounds ambitious take a look at what P&G has in store for India 2: To more than double revenues from $270 million to $570 million in the same time frame by riding on brands like Tide and Head & Shoulders. And in rural India, P&G hopes to take up revenues from $78 million to $180 million on the back of low-cost distribution models. For instance, P&G has stepped up community-led programmes in rural India to promote its brands. The companys marketers have started visiting girls in private and government schools to educate them about the usage of sanitary napkins and have had trials among 1.4 million new

consumers across six states. It has also initiated house-to house direct selling programmes to promote Whisper and break the affordability barrier. P&Gs obsession with affordability has often spilled over into price wars with HUL. Unilever CEO Paul Polman, who has 20 years at P&G behind him, took a dig at P&G on a recent India visit. He criticised "a competitors (read P&G)s predatory pricing strategies. We are not going to be silent and let such companies take away half of our business through short-term pricing strategies, was Polman's quip P&G officials will tell you that there is nothing short term about their strategies. Yet can it realistically play catch-up with HUL when its India revenues are currently roughly a fourth of the Anglo-Dutch majors local subsidiary? Says Ali Dibadj, an analyst from US brokerage firm Sanford Bernstein: P&G is certainly behind in capturing the Indian growth story. He makes the point that whilst P&G can make efforts to increase consumption and develop fledgling markets like skin care, it has little choice but to take on HUL head-on in big categories like detergents and hair care. The good news for P&G is that per capita spending in India on its products is rising from under 60 cents two years ago to a little under a dollar currently. Thats still lower than the average of $3 per head for P&Gs top 11 Asian markets. But Khosla is upbeat that P&G India will get there. The billion-dollar question, however, is how long will it take the marketer to get to a place that many analysts feel P&G India should have reached some time ago. kala.vijayraghavan@timesgroup.com

Kala Vijayraghavan & Sagar Malviya

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