We unpick Procter & Gamble’s (P&G) Q3 results to understand how it is planning to trade its way through the coronavirus pandemic and beyond, and highlight the lessons for other CPG suppliers.
1. Sales cycles are varying by geography
P&G delivered a strong quarter, with sales up 6%. However, while it experienced strong consumer demand in North America and certain European markets, this was offset by volume decreases in several Asian markets. Sales for the quarter were up 10% in the US, 14% in Canada, 6% in European focus markets, 15% in European enterprise markets and 11% in Latin America.
However, having anticipated that sales would be down around 20% in China, its second largest and second most profitable market, sales only fell by 8%, excluding travel retail. Lost sales in physical stores were partly offset by ecommerce growth in the country.
2. Sales surge does not always equate to share gains
The company delivered a strong performance in nine of its 10 categories. Its main challenge was in ‘Family Care’, its Bounty and Charmin paper business. Following a surge in demand, it continues to experience some supply challenges. In the short term, it may experience share losses as several of its competitors can switch supply from commercial and industrial segments, areas that P&G does not operate in.
3. New routes to market to overcome sales challenges
P&G has also seen its travel retail business come to a standstill. The focus in the short term is ensuring consumers can access these products in other channels. It has also seen a decline in grooming due to the closure of electrical stores in Europe (for its Braun products) and lower shaving frequency as people work from home. It is working with several retail partners to try to reprioritise the category in-store.
4. Higher ecommerce penetration will stick
During the quarter, ecommerce sales increased 35% globally. The strongest growth was experienced in the US and China, with 50% growth in some categories. The channel represents around 10% of P&G’s global business. The business expects to see a permanent shift in channel penetration. With similar category shares in its offline and online business, along with similar margins, P&G is comfortable with the direction of travel for the channel.
5. Lower promotional participation expected over next few quarters
P&G is expecting to run fewer promotions over the next few quarters. In Q4 to date, the volume of sales on promotion is down around five points. The focus will be on re-stocking and replenishing key items, while retailers are less focused on traffic-driving initiatives.
6. Categories will be reset coming out of the crisis
Moves by retailers to focus on key brands and eliminate the long tail in categories will also benefit the company. This has been a key focus to ensure major brands have been available for customers to purchase. Coming out of the crisis, it does not expect all categories to reflect their pre-crisis state, with P&G and its retail customers using the opportunity for a major reset.
7. Consumers are turning to the big brands and products they trust will work
Consumers are also turning to established brands, or those which offer superior performance in response to the pandemic. This is aligned with P&G’s product development. Demand for its products grew as consumers sought to maintain their hygiene, personal health and clean homes. The company is upweighting its marketing activities to drive repeat purchase with new customers, many of whom were driven to its products and brands based on availability as sales surged.
8. High degree of uncertainty and volatility in the trading environment
The trading environment is characterised by a high degree of uncertainty and volatility. There are significant variations in forecasts for the duration and severity of the pandemic. In addition to its own operations, the company may be impacted by issues at its suppliers, contractors and transportation partners. It may also be impacted by retailers temporarily closing stores. Despite this, it is maintaining its guidance on sales and profitability for the full year.
9. The business is already in recession mode
The economic backdrop may also shape its future performance. P&G is operating on the assumption the recession has started and will be prolonged. It believes its product portfolio is equipped to meet customers’ needs, focused on daily use items where performance drives brand choice.
It also has less exposure to discretionary items compared to the previous economic downturn. Going forward, it will be emphasising performance-based value messaging and offer relevant pack sizes designed to hit key spending thresholds for consumers, who will likely be making week-to-week purchase decisions.
It also believes it is well positioned to meet the challenge of private label. For consumers trading down due to price, it wants to ensure it has branded options. However, some consumers will trade-up, seeking the reassurance of performance and dependability, which P&G aims to offer through its core product portfolio.
10. Staying close to changing consumer needs is the priority
The business believes it is well-positioned for the longer-term. It is seeing consumers adopt new hygiene and cleaning routines, using its products daily or multiple times each day. There has been an increase in the number of loads of laundry done each week and the number of items that are cleaned after being worn once. With more meals being prepared at home, more cleaning is also being undertaken.
For P&G, understanding the smallest adjustments in consumer behaviour is key at this moment, given that both their habits and consumption levels are changing. Its focus is on being responsive to those changes with the most relevant brands and products in each category, on a market-by-market basis.
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