These are tough times for the consumer-products industry. Raw-material costs are soaring even as big retailers demand ever-lower prices for the toothpaste, diapers, and dishwashing detergent they peddle. So it was perhaps not so shocking when, on Sept. 20, both Colgate-Palmolive Co. (CL) and Unilever Group sharply reduced earnings forecasts for the second half of the year. What is surprising is how nimbly industry giant Procter & Gamble Co. (PG) seems to be navigating the same shoals.
Not so very long ago, P&G was the lumbering giant of the industry. No longer. Thanks to a potent mix of smart products and muscular marketing, it is thriving at a time when others are sputtering. Quarterly earnings are expected to rise 14% when P&G reports in October, vs. an expected 7.7% drop at Colgate. Unilever has also said its upcoming quarterly profit will fall below the year ago level. And P&G continues to gain share in lucrative spots: It has 70% of the tooth-whitening market, up from 57% a year ago, and 48% of disposable diapers, vs. 45% a year ago.
What does P&G have that others lack? Size, of course. With $51 billion in sales last year, P&G is about five times larger than Colgate. It has also been smart about targeting higher-margin areas, such as beauty care, that require less capital spending than its traditional businesses, such as disposable diapers. That has freed up more dollars to spend on advertising. P&G's ad budget is now 10.7% of sales -- up from 8.1% in 2001 and double the percentage Colgate spends.
But the real key for P&G has been renewed creativity. Since A.G. Lafley took over in 2000, P&G has shown a savvy knack for innovation. From its Swiffer mop to battery-powered Crest SpinBrush toothbrushes and Whitestrip tooth whiteners, P&G has simply done a better job than rivals at coming up with new products that consumers crave -- and, not incidentally, on which it can earn higher margins than it can on its more mature lines. In the last three years P&G has updated all of its 200 brands and created whole new product categories -- such as Mr. Clean AutoDry Carwash -- that have added $2 billion in sales. "We are growing market share in 70% of our businesses," says Clayton C. Daley Jr., P&G's chief financial officer. "That doesn't happen unless you have strong innovation."
More aggressive marketing helps, too. Check out P&G's latest take on toothpaste-hawking: The company is launching its Crest Vanilla Mint toothpaste during an episode of The Apprentice. The focus of the show will be the contestants' plans for marketing the toothpaste. During a 15-second spot, viewers will be invited to visit Crest.com, where they can write in how they would have handled the marketing job. The winner will geta free trip to the live show finale.
Just as important, P&G is becoming expert at stealth marketing. When it was developing Whitestrips, it held off on expensive TV ads and store testing, opting instead for a six-month online ad and sales campaign. That allowed execs to gauge interest and refine the marketing. "It was inexpensive," says Gary M. Stibel, founder and principal at New England Consulting Group. "And by the time they were ready to launch, they had a huge head start."
Rivals, too, are stepping up their marketing. But without innovative new products to match, that effort could devolve into a round of discounting, some warn. "They run the risk of having the brands fall to the point where they're not even relevant to the consumers unless they're on sale," says Alfred A. Davis, former manager for new-business development at P&G and now director of national accounts at a food-service supply company.
Of course, none of this guarantees that the same economic forces that are buffeting Colgate and Unilever won't start to pinch P&G, too. And Colgate and Unilever are hardly down for the count. "There is a worldwide competitive threat, and we have learned from long experience that you must deal with it immediately and forcefully, and then you emerge stronger afterwards," says Colgate CEO Reuben Mark.
Maybe so. But given P&G's current advantages, the smart money is betting on the company that suddenly made the world need brighter, whiter teeth.
By Robert Berner in Chicago, with Nanette Byrnes in New York and Wendy Zellner in Dallas