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Procter & Gamble Co. (PG) still expanding global reach

CEO: The strategy is to be in every country

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CINCINNATI - One year ago, Procter & Gamble Co. confided to analysts that it may have pursued its global-expansion strategy too quickly. One year later, it is actively pursuing new product launches on six continents.

"The strategy is to be in every country," CEO Bob McDonald said during a recent public appearance. "Right now we're working on entry in Myanmar because the U.S. government is now opening up Myanmar. We're working on different parts of Africa where we haven't been before. The strategy is very simple. It's to identify where we have a competitive advantage and then use that competitive advantage to enter the new country."

McDonald made those remarks to students at Butler University in Indianapolis April 4. That was just 11 months after Chief Financial Officer Jon Moeller told analysts that P&G would slow its pace of expansion, while it shored up its 40 most important product lines.

"In retrospect we may have overextended ourselves a bit with the pace of our portfolio and geographic expansions," Moeller said at a Citigroup conference last May. "Had we anticipated the commodity cost increases and markets contractions in developed markets that we ultimately experienced, we might have chosen a slightly slower pace."

P&G spokesman Paul Fox said the two statements are not contradictory.

"Bob's comments refer to our long-term strategy. Jon's comments were specific to year-to-year pacing of the strategy.  They are both a part of the same plan and process," Fox said.

During a conference call with analysts in February, P&G described seven new product launches on six continents. The launches involved variations of products including Downy Unstopables, Cascade Platinum, ZzzQuil, Pantene, Olay Regenerist, Wella shampoo and Ariel laundry detergent.

In his Indianapolis speech, McDonald revealed that Oral-B toothpaste had expanded to Australia. The expansion means P&G now sells toothpaste on six continents.

Michelle Vaeth, a spokeswoman for the brand, said P&G may sell toothpaste on seven continents. It does not sell directly to consumers in Antarctica but it may sell the product through distributors. African nations Cameroon and Senegal are next on the Oral-B expansion list, Vaeth added.

Oral-B was known as a toothbrush brand when P&G bought it as part of the Gillette acquisition in 2005. It launched a global expansion strategy in 2009 that involved the use of innovations developed for its Crest brand in Oral-B toothpaste products.

"Overall, the expansion is going great," Vaeth said. "We have launched paste in approximately 40 markets in the past couple of years. We are the number one contributor to category growth in all markets we've been in for more than 12 months."

P&G has long stated its desire for global expansion and never backed away from previously announced plans to build 20 new factories all over the world. The reason is demographics. Population is growing in Asia, Africa and Latin America. Europe and North America, not so much. In the last three years, P&G grew net sales by $6.1 billion, while U.S. sales were flat.

In a February conference call, CFO Moeller delivered an update on P&G's global construction initiative.

"Over the next two years, we'll start production at new plants in China, Brazil, Nigeria and Indonesia," Moeller said. "We'll be adding capacity for new categories at existing sites in Poland, Venezuela and India. And we will be adding additional capacity, further localizing supply, across Asia, Central and Eastern Europe, the Middle East and Africa."

So, BMO Capital Markets analyst Connie Maneaty isn't surprised that P&G is pursing so many global expansions at once, even though Moeller talked about dialing back the pace of expansion last year. She said the comments "came at a time when they weren't focused enough on the U.S. and Western Europe."

With those markets now improving, Maneaty said P&G is wise to broaden its global reach. Maneaty said P&G is having the most success selling toothpaste in Latin America and laundry products in the U.S. In these markets, Maneaty sees "hundreds of basis points" in potential market share expansion for the major rivals, including P&G and Colgate in toothpaste and P&G and Church & Dwight in laundry.

"Both Colgate and Procter can do well in oral care without going head to head," she said. "We're seeing this in laundry too. The brands in the middle are getting squeezed."

A look at P&G global expansion

 

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