April 26, 2013 7:15 pm

Change of fortune

Like P&G, Unilever spent a long time in a funk. For the best part of a decade, turnover barely budged, share performance was lacklustre and strategic direction was wanting.

Under Paul Polman, himself a P&G alumnus who took up the reins at the Anglo-Dutch group at the start of 2009, much has changed.

Targeting a doubling of turnover to €80bn – over an unspecified timeframe but generally taken to be 2020 – he set about divesting small non-core assets, launching bold acquisitions, speeding up innovation and forging further into emerging markets, which now account for 57 per cent of revenues.

So Skippy peanut butter and Chicken Tonight cook-in sauces were ejected from the larder. In their stead came the faster-growing and more profitable shampoos of Albert Culver and Russian cosmetics maker Kalina.

Unilever is “streets ahead of P&G” on innovation, according to Warren Ackerman, analyst at Société Générale. The maker of Dove shampoo and Flora margarine last year rolled out 90 innovations to more than 10 countries, a tenfold increase on 2009 levels.

Mr Polman believes that new products are vital to tempt cash-strapped consumers to part with their dwindling disposable incomes.

But it is not just Unilever that is giving P&G a run for its money. L’Oréal of France has been selling more skincare creams and cosmetics across the globe, helping it report a 5.5 per cent year-on-year increase in sales in the first quarter.

Gallingly for P&G, competitors are grabbing share in some of its top markets. On home turf in the US, L’Oréal is elbowing P&G shampoos and conditioners off bathroom shelves.

In China, one of the few emerging markets where P&G boasts a longer history than Unilever, L’Oréal lifted sales by 11 per cent year-on-year in its first quarter.

Emerging markets are generally one of P&G’s weaker suits: approaching 40 per cent, its sales from these regions lag
Colgate-Palmolive’s 50 per cent and virtually all European rivals.

This is not all bad. Most participants flagged up softening in these markets in aggregate, and profitability tends to be lower, partly due to inflated media costs and higher capital expenditure.

But P&G, the company that proudly launched 10 cent nappies in China – at a time when toddlers were most likely to be found wearing pants with strategic rips – cannot afford to slip here. As makers of infant formula have discovered, even when sales of Scotch whisky or designer handbags start to flag, Chinese babies are a lucrative market.

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