P&G Sees Hopeful Signs in Very Challenging China Market
Aug 03, 2016
Fall in consumer spending, more competition and rise in online shopping are hurting P&G, other makers of consumer goods
Procter & Gamble shampoo for sale in China. Global consumer-products makers have had trouble navigating the local market. PHOTO:ZHANG PENG/LIGHTROCKET/GETTY IMAGES
Procter & Gamble Co. is clawing its way out of a hole in China as it and other global consumer-products companies struggle to make sense of the critical but increasingly tough market.
Global makers of products from diapers to toothpaste have been hit by a trifecta in China of slower consumer spending, heightened competition and a rapid shift toward online shopping. The dynamics have triggered a price war in the country and are taking a bite out of earnings for companies such as P&G, Colgate-Palmolive Co. and Unilever PLC.
Procter & Gamble, which in the past year fell behind its rivals in China, said Tuesday that the company has begun to stem market-share losses. “It is progress, but nothing worth celebrating yet,” Chief Executive David Taylor said.
The company said its organic sales in China were down 5% for the fiscal year that ended June 30, but that each quarter was an improvement over the previous period. It said organic sales were flat in the most recent quarter. Greater China comprises about 8% of P&G’s sales.
“There is a meaningful and long-term shift under way there and it’s been happening for years,” Mr. Taylor said in an interview. “We are late to the party but we are pivoting.”
Several of P&G’s global rivals have reported that China has become a problem area. Kimberly-Clark Corp. was forced to cut diaper prices there to hang on to market share, Chief Executive Thomas Falk told investors last week. Colgate said sales declines in China offset gains elsewhere in the Asia-Pacific region in the latest quarter.
Mr. Taylor said his company is finding success in China with new products and improved marketing, such as a campaign for the high-end SK-II skin care brand. P&G’s ad highlighted unmarried women older than 25 years, referred to as “leftover women,” and the so-called marriage market where parents place elaborate personal ads in an effort to find suitors for their daughters. The emotional ad went viral. Since the launch, Mr. Taylor said, sales of the products are up 30% at SK-II counters in China.The launch of Oral B Gum Care, a premium line of toothpaste, has helped the company in the dental-care category in China, Mr. Taylor said.
The gains are an improvement from earlier this year, when the CEO told analysts that the company had lost ground in all categories in China after failing to keep pace with rising income levels.
Global makers of products from diapers to toothpaste have been hit by a trifecta in China of slower consumer spending, heightened competition and a rapid shift toward online shopping. The dynamics have triggered a price war in the country and are taking a bite out of earnings for companies such as P&G, Colgate-Palmolive Co. and Unilever PLC.
Procter & Gamble, which in the past year fell behind its rivals in China, said Tuesday that the company has begun to stem market-share losses. “It is progress, but nothing worth celebrating yet,” Chief Executive David Taylor said.
The company said its organic sales in China were down 5% for the fiscal year that ended June 30, but that each quarter was an improvement over the previous period. It said organic sales were flat in the most recent quarter. Greater China comprises about 8% of P&G’s sales.
“There is a meaningful and long-term shift under way there and it’s been happening for years,” Mr. Taylor said in an interview. “We are late to the party but we are pivoting.”
Several of P&G’s global rivals have reported that China has become a problem area. Kimberly-Clark Corp. was forced to cut diaper prices there to hang on to market share, Chief Executive Thomas Falk told investors last week. Colgate said sales declines in China offset gains elsewhere in the Asia-Pacific region in the latest quarter.
Mr. Taylor said his company is finding success in China with new products and improved marketing, such as a campaign for the high-end SK-II skin care brand. P&G’s ad highlighted unmarried women older than 25 years, referred to as “leftover women,” and the so-called marriage market where parents place elaborate personal ads in an effort to find suitors for their daughters. The emotional ad went viral. Since the launch, Mr. Taylor said, sales of the products are up 30% at SK-II counters in China.The launch of Oral B Gum Care, a premium line of toothpaste, has helped the company in the dental-care category in China, Mr. Taylor said.
The gains are an improvement from earlier this year, when the CEO told analysts that the company had lost ground in all categories in China after failing to keep pace with rising income levels.
On Tuesday, P&G reported a profit of $1.95 billion for the quarter ended June 30, a jump from the same period a year earlier when the Cincinnati-based company earned $521 million after taking a roughly $2 billion charge related to its Venezuelan operations. Revenue slipped 2.7% to $16.1 billion. The maker of Tide and Pampers predicted that organic sales—a closely watched metric that strips out currency moves, acquisitions and divestments—will increase 2% in the fiscal year started July 1. The uptick would be an improvement to the 1% growth for the year ended June 30, but well below P&G’s historic gains.
P&G’s efforts in China are stunted by growing competition from local players and a shift by consumers who are abandoning traditional retail outlets, leaving companies saddled with excess inventory in stores and scrambling to figure out the most effective way to sell online. The effects are particularly acute in the middle and low ends of the market, executives say.
Unilever Chief Executive Paul Polman said the quick shift to e-commerce, under way now for more than a year, remains “confusing” for the maker of Dove soaps and Lux shampoo.
“It is very hard to read the Chinese market,” Mr. Polman said on a call with analysts. “You can go to China now and really see empty stores when you go into hypermarkets and supermarkets that we’ve not seen before.”
Source: WSJ
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