HEALTH

P&G outlines its profit plan: stick to personal care, health products

BY Michael Johnsen

NEW YORK Last week during an analyst presentation, Procter & Gamble outlined its strategies to maintain a 3 percent growth rate going forward—pull away from businesses like pharmaceuticals that represent declining margin opportunities and re-double efforts in continuing growth across margin-friendly businesses like personal healthcare.

“The fear of recession in the U.S. has turned into acknowledgment that we’re actually in a recession,” A.G. Lafley, chairman and chief executive officer of P&G, told analysts attending the conference. “Unemployment is rising while investments and retirement accounts continue to decline. Food costs are rising around the world, especially in the developing world and real wages are dropping. Home sales and home prices are down. Auto sales are down. Retail sales are down,” he said. “But the picture isn’t nearly as bleak in fast-moving consumer goods. … In our categories, market growth rates are slowing but still growing in the absolute on both a unit and a value basis.”

P&G announced it has frozen any research and development across its pharmaceutical market, and will even entertain divesting those products in the coming year.

“We will now focus R&D and our licensing and acquisition resources on building consumer healthcare businesses, oral care and feminine care and, of course, personal healthcare,” Lafley said. “Our objective going forward is to maximize the value of our four key pharma brands—Actonel, Asacol, Enablex and Intrinsa. We intend to manage them throughout each brand’s natural life cycle. However, we will also consider the divestiture of some or all of these brands.”

In today’s environment, pharmaceutical businesses deliver lower returns for shareholders than they did when P&G invested heavily in this sector earlier in the decade, Lafley noted. “The regulatory environment is much more difficult with far greater time and costs required to develop new drugs. Asset lives are shorter as regulators grant an increasing number of generic approvals prior to patent expirations and there is significant downward pricing pressure in the pharmaceuticals market.”

In the late 1990s, pharmaceuticals traded at multiples at least 10 points higher as compared to consumer products. Today, those same companies trade in multiples at or below consumer products. “This has led to our decision to de-emphasize pharma and increase our focus on consumer healthcare, a business driven by strong brands where trends are driving growth opportunities in P&G’s core capabilities give us important competitive advantage.”

And the company plans to invest heavily across its healthcare brands—both in traditional advertising and trial-driving programs. “In tight economic times, many companies pull back on advertising as a cost cutting measure,” Lafley said. “This creates an opportunity for us to buy more media at a lower cost and to increase our brands’ share of voice relative to competitors.”

Health and well-being represents approximately a $19 billion slice of the pie for P&G—which translates to about 23 percent of P&G sales and 24 percent of net earnings. Divided across two businesses—healthcare on one end and snacks and pet care on the other—health and well being is home to 11 of P&G’s 43 largest brands, including six brands with over a $1 billion in annual sales. “Our top 11 brands account for 85 percent of health and well being sales, and over 90 percent of the profits,” noted Rob Steele, P&G vice chairman of global health and well-being.

In personal healthcare, sales have grown at a strong compound average rate of about 20 percent per year over the last five years, Steele reported. This growth has been driven by four factors—a renewed global focus on growing the Vicks franchise; an increased presence in digestive health with the launch of Prilosec OTC and continued steady performance of the Pepto-Bismol and Metamucil brands; strong growth in the newly repositioned and strengthened PUR Water business; and P&G’s entry into home health diagnostics with our Swiss Precision Diagnostics joint venture.

“We really like consumer healthcare because it is a big market with over $240 billion in global retail sales,” Steele said. “It is growing fast at a 5 percent to 6 percent annual rate. It is financially attractive with very healthy margins. And it’s a very fragmented market. For perspective, the global leader in this space, J&J, has less than a 10 percent share. P&G is actually the number two player with a 5 percent share.”

P&G is currently in the process of introducing a line of probiotics that expands P&G’s presence in digestive health, Steele noted. “Align is a product that builds and maintains a person’s natural defense against digestive issues such as occasional irregularity. Align is a great complement to the Prilosec OTC, Pepto-Bismol and Metamucil digestive health brands.”

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GSI Commerce, GNC agree to extend e-commerce partnership

BY Michael Johnsen

PITTSBURGH, Pa. GSI Commerce and GNC on Tuesday announced a multiyear extension and expansion of the e-commerce agreement between the two companies. Under the agreement, which runs through 2017, GSI will continue to provide GNC’s online store with e-commerce technology, order management and customer care operations.

“Since partnering with GSI, our online business has become an important channel for both product sales and information,” said Beth Kaplan, president and chief merchandising and marketing officer for GNC. “We are excited about extending our e-commerce agreement with GSI and expanding our relationship to include interactive marketing services.”

In addition to e-commerce services, the agreement names GSI’s digital agency, gsi interactive, as GNC’s digital agency of record and adds a full complement of marketing services that include site usability testing, paid search marketing, comparison shopping engines, affiliate marketing, display advertising, emerging media, and e-mail services powered by e-Dialog, GSI’s e-mail marketing subsidiary.

“We are very happy that GNC will continue to build its online business with GSI as its e-commerce partner,” said Scott Hardy, executive vice president of business management for GSI. “This long-term, multiyear, and expanded agreement speaks to the success of the relationship and to the opportunity in front of us for continued growth.”

GNC launched its online store on GSI’s e-commerce platform in the fourth quarter of 2005. Online sales have since become an important channel for GNC as well as a valuable extension of its brand, the company stated.

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Forbes names Home Diagnostics one of its 200 best small businesses

BY Michael Johnsen

FORT LAUDERDALE, Fla. Home Diagnostics on Tuesday announced that it was named one of Forbes magazine’s “200 Best Small Companies” in the October 27 issue of that publication, which makes for HDI’s debut on the Forbes list.

“Being recognized by Forbes as one of the nation’s best small companies is a testament to the success of Home Diagnostics’ growth strategy,” stated Richard Damron, Jr., president and chief executive officer of Home Diagnostics. “National pharmacy chains, distributors and mail service providers trust our blood glucose monitoring systems to represent their own brands because we offer high-performance products at a significant cost savings to their diabetic customers. Our ability to capitalize on our unique distribution model and gain market share with competitive price points positions Home Diagnostics as a strong player in a growing $7 billion diabetes testing supplies market.”

“The Forbes list of the 200 Best Small Companies seeks to identify the strongest public companies with sales under $750 million,” said Kurt Badenhausen associate editor at Forbes. “These firms all have reasonable debt burdens and have had solid sales and earnings growth over the past five years.”

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