Procter & Gamble Hygiene and Healthcare Ltd. formerly P&G
India, has identified healthcare and feminine hygiene as the long-term areas of growth. It
has discontinued its arrangement with P&G Home Products, for the manufacture of
shampoo in the current year. This is following a change in the product formulation of
shampoos by P&G Home Products which required massive additional doses of capital,
which it is learnt, the company was not ready to commit.
The termination of the agreement will
affect the companys sales by Rs 14 crore in the second half of 1999-2000.
PG Hygiene and Healthcare is in charge of
the Vicks brand of healthcare products, the Whisper brand of feminine hygiene products,
Old Spice Mens toiletries and Clearasil. Until April this year, the brand of
medicated shampoo, Mediker, was also in the companys portfolio when it was sold off
to Marico Industries. The company has also entered into a distribution-cum-marketing
tie-up with Marico for Clearasil and Old Spice Mens toiletries.
PG Home Products is in charge of the Ariel
brand of detergents--Ariel Compact, Ariel Gain and Ariel washing bar, It also has the
Pantene Pro V and Head & Shoulders shampoos and Camay soap.
PG Health and Hygiene has been slowly limiting its focus
to just two brands--- Whisper and Vicks---which it feels have the potential to become
market leaders. Over the years it has gradually divested out of businesses which it
considers non-core areas. It sold its detergents business to P&G Home Products, the
wholly-owned subsidiary of Procter &Gamble Co, US, in 1993. This was followed by the
transfer of distribution rights for brands such as Clearasil and Old Spice to Marico
Industries. The anti-lice shampoo brand, Mediker, was also sold to the same company for Rs
P&G Co. US operates in India through
two subsidiaries: PG Hygiene and Healthcare and PG Home Products. While the former is a
listed company on the Indian bourse in which the parent company has a 65 per cent equity
holding, the latter is unlisted and is a wholly-owned subsidiary of the American company .
In recent years, the parent company has been favouring its
wholly-owned subsidiary with all new product launches as a result of which, while
marketing and distribution rights for Ariel, Head & Shoulders and Pantene lie with
P&G Home Products, P&G Hygiene and Healthcare is left with just two major brands
Vicks has lost market share to spurious look-alike brands
and a host of new products in the market. To strengthen its brand image, the company has
given Vicks the status of a mega brand and all Vicks sub-brands--Vaporub, Action 500,
Cough Drops, Inhalers--have been given a common synergy via packaging to make them look
P&G has been losing market share in sanpro since
mid-1996. This was accelerated by the launch of Johnson & Johnsons''s Stayfree Secure
and Kimberley Clarke Lever''s Kotex in end-1997. From a market share of approximately 43
per cent before the launch of Secure and Kotex, Whisper''s share has dropped to an all-time
low of 28.5 per cent in June 1999.
The company intends to attain the erstwhile position of
this brand via a slew of marketing measures. It launched a slim, extra-long version of
Whisper with Wings a few months ago and is reported to have spent 60 per cent of Whisper''s
annual ad expenditure in the first six months of this year alone.
While the company retains two major brands in its product
portfolio, roughly 45 per cent of its revenues are derived from its contract manufacturing
agreement with P&G Home Products. P&G Health and Hygiene manufactures soaps,
shampoos and detergents for P&G Home Products. This has helped in shoring up revenues.
However, this revenue may also be in jeopardy. Recently
its agreement for shampoos with P&G Home Products was terminated, since the parent
company had changed the product formulation and a large amount of investment was required
to make the changes and the wholly-owned subsidiary reportedly was not willing to
undertake the required investment.
For P&G Health and Hygiene, this means a significant
loss of revenue. While it will undoubtedly get an adequate once-off compensation, it will
not recompense for the permanent loss of revenue.
PG Home Products has been focussing on the
Ariel range, Pantene and Head & Shoulders, and has virtually put Camay soap on the
backburner. Recently the company entered into a distribution and marketing agreement with
Marico Industries for Camay.
In 1998-99, as part of its global
corporate restructuring program called Organization 2005, PG Hygiene and Healthcare made
several changes in structure, work processes and culture to generate greater stretch,
innovation and speed to help its products reach the market faster. The company in India
has offered a VRS of Rs 9 crore to 60 employees during the year by reengineering its work
Last year, 1997-1998, saw PG Hygiene and
Healthcare sales rising by six per cent at Rs 468.3 crore over the previous year, while
net profit rose by 32 per cent to stand at Rs 56.86 crore as against Rs 43.19 crore the
previous year. Sales of sanitary napkins registered a growth of two per cent and
healthcare products grew marginally by 1.5 per cent. Products under the Vicks brand such
as Vaporub and Action 500 recorded double-digit growth, while sales of cough drops
declined over the previous year.
Of late, the market has been taking note
of the risks of a limited brand profile and tended to accord a lower valuation to
companies like P&G and Smithkline Beecham Consumer Healthcare than companies like HLL
and Reckitt and Coleman whose product portfolio straddles a greater number of segments.
Also the uncertainty of whether or not product launches would be routed through the listed
company may also affect the stock of the company.
The good news for P&G Hygiene and
Healthcare is that the operational restructuring effected over 1998-1999 may improve its
profit margins. During 1998-1999, the company moved to a demand-driven system of stock
replenishment and sharply cut distribution margins on its key products. This resulted in
improving the companys profit margins for 1998-1999 to 19.5 per cent as against 17.3
per cent the previous year. Around March this year, Procter & Gamble decided to
reorganize its businesses across Asia nominating a particular country as the focal point
in each region for a product category. As part of this India was named the hub of the
companys healthcare business in the Asian region and Australia. PG Hygiene and
Healthcare is already being used as a sourcing base for products such as Vicks in the
Asian region. Exports contributed 5 per cent of the companys sales in 1998-1999 and
recorded higher growth rates than the domestic business.
claimed to have a 36 per
cent market share. And the company claims a 50 per cent market share for its feminine
hygiene brand Whisper. Feminine hygiene product sales account for a fifth of P&G
India''s sales. However, recent price increases by the company and the introduction of
low-priced products by Johnson & Johnson have reduced P&G''s market share.