P&G Is Our Company of the Year

In our annual online competition, Beauty Packaging polled our more than 10,000 readers to see which industry innovator they thought deserved the title of Company of the Year: Excellence in Packaging. Procter & Gamble led the votes just as they lead the marketplace. Here’s why . . .

By Jamie Matusow, Editor

William Procter James Gamble

When William Procter, a candle maker, and James Gamble, a soap maker, partnered in 1837, they probably didn’t envision that just their two surname initials would one day be recognized in millions of households throughout the world—or, that, 170 years later, the Cincinnati, Ohio, company they founded would reach a staggering $76 billion in annual net sales (nearly double what it was just seven years ago). The partners hit the jackpot in 1879 when the company launched the world’s most famous and longstanding soap—Ivory—which led to the addition of about 30 types of soap over the next 10 years. Markets grew and P&G responded, opening new manufacturing plants and developing new products. Innovative not only with its offerings, the company had the foresight to create a market research department in 1924, about the same time it began advertising in print and on the radio, starting with the first “soap operas.” P&G’s inspired thinking led to many more “firsts,” including the first perfumed beauty soap, Camay (1926); the first overseas subsidiary, Thomas Hedley & Sons, in England (1930); the first synthetic detergent for household use, Dreft (1933); the first detergent-based shampoo—which P&G defines as its first true beauty product—Drene (1934); the first time a TV commercial (for Ivory) aired during a major league baseball game (1937); the first toothpaste with fluoride, Crest (1955); and many others.
   
Through keen market research and a targeted acquisitions policy, P&G has today amassed a portfolio of close to 300 brands from beauty to batteries, diapers to deodorant, pet food to prescription drugs, snack foods to skin care, household cleaners to high-end fragrances—and the list goes on.
   

Ivory was P&G’s first big brand.

P&G now holds so many household brands under its umbrella that Paul Fox, P&G’s director, global operations, ER and corporate media relationships, says, “Every day, more than half of the world’s six billion consumers place their trust in P&G products,” which he adds, is “a billion more than at the beginning of the decade, but a billion less than what we hope to reach by the end of the decade.”

Thinking Globally

P&G, the world’s largest manufacturer of household products, maintains a strong global mix with about half of its sales coming from the U.S. and half from other countries. Nearly 40% of the company’s sales growth in fiscal 2007 came from developing countries, and that trend is expected to continue, according to A.G. Lafley, P&G’s chairman of the board and CEO, who sees huge growth potential in that sector. “We’re focusing on achieving disproportionate growth in fast-growing developing markets,” he stated in P&G’s 2007 Annual Report.
   
Sales of P&G products have now topped $1 billion in 12 countries. With a push toward global expansion via developing countries, P&G launched more than 1,800 products in 2007 (through December 21) alone, according to Mintel, about 500 less than in 2006. While introduction of the company’s cosmetics and hair care products waned in the international marketplace, its skin care and fragrance launches rose.
   
Domestically, P&G developed more than 300 products in 2007, according to Mintel, less than half of what it produced in 2006. As with P&G’s global new product development, introduction of new cosmetics and hair care items fell; skin care and fragrance remained relatively even.
   

Wella is just one of P&G’s global brands.

This shift in product categories may be attributable to Lafley’s commitment to focus on P&G’s billion-dollar brands, which accounted for about two-thirds of P&G’s annual sales in 2007—and an even greater share of profit. Unprecedented in any corporation, 23 of P&G’s brands have broken the billion-dollar mark in annual sales, with 18 additional brands rapidly approaching the magic mega-number.

Secret to Success

The key to P&G’s success, says Fox, is keeping the consumer at the heart of everything the company does. “For us,” he says, “the consumer is boss. We must win at the two critical moments of truth. The first moment is when the shopper has the opportunity to choose which product to buy; the second moment is when the consumer uses the product. We must win at those two moments of truth and we must delight them on each occasion. Our goal is to touch and improve the lives of consumers in often small, but meaningful ways.”
  
Fox says that beauty and health categories both show enormous potential in the years ahead and that P&G’s focus will be on “harnessing innovation to deliver the products that make a real difference in consumers’ lives.”

P&G Leads the Way in Beauty

P&G’s Beauty division is already healthy—and wealthy—with more than 100 brands, available in nearly 130 countries. Beauty net sales for fiscal 2007 reached almost $23 billion, double that of their peak in 2001. Big plans to multiply lie ahead. While P&G appears to have a hefty share of the $360 billion beauty and health care market, in reality, its share is only about 10%, but it’s expected to increase by 3% to 4% a year for the rest of the decade. Growth is expected to come from product innovations and new geographic markets. In 2007, Beauty and Health accounted for 30% of P&G’s net sales, with billion-dollar brands Head & Shoulders, Wella, Olay and Pantene leading the way.
   

Since acquiring the brand in 1985, P&G has turned Olay into a $1 billion business.

P&G Beauty brands also include Max Factor, Cover Girl, DDF, Sassoon Professional, Rejoice, Sebastian Professional, Herbal Essences, Koleston, Clairol Professional, Nice ’n Easy, Venus, Gillette and SK-II, and Christina Aguilera, Escada, Hugo, Boss, Lacoste and Dolce & Gabbana fragrances.
   
Gillette and Braun, which were acquired in a $53 billion takeover in 2005—“the largest acquisition and the most complex integration in the consumer products industry and in P&G history,” according to Lafley—also have billion-dollar product status.
   
According to Euromonitor, Procter & Gamble is the world’s leading cosmetics and toiletries company, having gained the No. 1 position following its acquisition of Gillette. Truly a global company, P&G maintains a leading or top-two ranking in every regional market. P&G leads in both the vast hair care sector and the rapidly growing men’s grooming sector, with top three rankings in deodorants, oral hygiene, color cosmetics and bath and shower products. Euromonitor says that during its 2001-2006 review period of the company, P&G has also been working to expand its share in “important” skin care and fragrances.
   
P&G brands hold the number one and/or two place in the following beauty arenas: skin care, hair care, cosmetics and fragrance. Following is a breakdown of the beauty factors that add up to P&G’s winning formula.

P&G’s Beauty Goes Skin Deep

According to Mintel, although the U.S. facial skin care market includes a huge number of competitors, just a handful hold significant market share. In FDM channels (excluding sales through Wal-Mart), a mere four manufacturers account for nearly two-thirds of all sales. Procter & Gamble holds the largest individual company share.
   

Aging consumers keep clamoring for Olay.

Crucial to P&G’s share was undoubtedly its savvy 1985 addition to its OTC and personal health care business: the acquisition of Richardson-Vicks, owners of Vicks respiratory care and Oil of Olay product lines. Olay reached its magic $1 billion mark in global sales in 2003, and is now sold in more than 60 countries. It is the No. 1 skin care brand sold in the U.S., and is the P&G beauty brand that may most clearly illustrate the company’s marketing prowess. Mintel says that the Olay brand accounts for nearly four in 10 anti-aging products sold in FDM.
   
Retail sales of skin care products in the U.S. totaled $7.8 billion in 2006, according to Euromonitor, and with the anti-aging product industry increasing 7% annually, the options will only continue to grow. Euromonitor predicts that Olay will continue to benefit from the world’s changing demographic, with moisturizing products gaining in popularity as the number and spending power of women grows. Two of Olay’s newest products, introduced in 2007, Regenerist Microsculpting Cream and Definity Eye Illuminator, are gathering acclaim—and sales—in the mass skin care category.
   
According to Mintel, “The Olay Regenerist line leapt out of the gate and captured the highest dollar share of any brand in facial moisturizing at mass market retail in the U.S., shattering all anti-aging sales records to date. Competitors quickly followed with a number of me-too’s, and reframing vs. cosmetic procedures became the new paradigm for advertising skin care
products.”
   
Maria Burquest of P&G’s Global Beauty Unit, says Olay’s success comes from being different from other skin care treatments. “Olay strives to delight our consumers with acute and chronic skin benefits,” she says, “which means that [the consumer] will notice an immediate difference as the product is applied, and over time, with regular use, she will experience measurable, noticeable improvements in her skin.”
   
Long-time Olay users will also note the improvements in the brand’s packaging. Burquest says Olay has gone through a true metamorphosis from the time P&G acquired it as “Oil of Olay” in the pink bottle until today when there are different boutiques that speak to different consumer segments. 
   

SK-II is just one of P&G’s top-selling upscale brands.

“Each boutique,” explains Burquest, “is differentiated by design and functional benefit to target a different group of consumers. For instance, Total Effects fights the seven signs of aging, Regenerist targets cell regeneration, and Definity is about skin tone and texture. The packaging is the manifestation of the brand that the consumer first sees on shelf and then interacts with in the home. Our goal is to delight her at both “moments of truth,” and create a holistic experience for her. The package has to deliver on all the values, beliefs and benefits that the consumer knows about the brand.”  
  
As Olay Regenerist spreads around the globe, P&G is signing on local spokespeople in certain targeted markets to communicate its effectiveness. For example, in China, award-winning actress Maggie Cheung has endorsed the line and appears in advertising and in-store graphics as well as at public relations events.

Forward-Thinking Style

With P&G’s focus on brands with global potential, Euromonitor says Olay is a prime example of P&G’s forward-thinking style and “mega-brand” strategy. What began as a facial skin care line known mostly for its moisturizers, was extended into many other products as well as more advanced, higher-priced formulations. The Olay brand is kept fresh—and in the spotlight—with constant new innovations and updated
formats.
   
Four new Olay products are launching this month to kick off the new year. Also premiering this month is an Olay website, www.Olayforyou.com, designed to take the guesswork out of skin care. Here, a virtual conversation with a skin consultant leads visitors through an extensive range of personal skin care questions on an interactive website. The “professional” then makes customized suggestions for a personalized daily routine using Olay products to fit the user’s unique responses.
  

Noxema and Cover Girl joined the P&G lineup in 1991.

Another household skin care brand entered P&G’s impressive portfolio in 1991 with the acquisition of Noxell—and its Noxzema and Cover Girl brands. One of the longest-standing facial skin care brands, Noxzema has traditionally been positioned to appeal to a younger female consumer. P&G expanded the brand into a variety of cleansers, scrubs, toners, masks and wipes, and according to IRI Info-
Scan data, in 2006, Noxzema cleansers and acne treatments reached $30 million in
FDM sales.
  
While the majority of P&G’s facial skin care products are available through FDM channels, the company’s upscale SK-II (“secret key”) skin care line, launched in 2004, is available only through top-tier department stores such as Saks Fifth Avenue. The brand, which signed Cate Blanchett as its ambassador, features an anti-aging ingredient said to be found only in Japan, with products ranging to $300.
   
SK-II’s Air Touch Foundation ($150 for the starter set, including device and refill), for example, is housed in a beautiful sphere in the brand’s signature red color, and is as aesthetically pleasing as it is functional. It features a “breakthrough” ergonomically designed package that uses an advanced ionizer to disperse a precise application onto the skin. Battery-operated and easy to use, the foundation is easy to load, prime, and use, and is also travel-friendly—a simple click of the lid ensures that it’s closed, locked and no product can be dispersed. Even the sound of the application was carefully engineered: A gentle hum means that it is unobtrusive, yet the sound itself aids in the even dispersion of application, signaling where it is when applying with your eyes closed.
   
In another move to penetrate prestige skin care, in January 2007, P&G acquired HDS Cosmetics Lab, Inc., makers of the DDF dermatological skin care brand, an upscale line sold in retail and department stores and spas.

Strong Growth in Hair Care

According to Kline & Company, Inc.’s latest available figures, Procter & Gamble ranks No. 1, overall, domestically and globally, in the personal care market, and reports the company has earned the No. 1 standing in hair care in both the U.S. and throughout the world. P&G is a powerful player in this category, boasting three of its billion-dollar brands here: Pantene, Head & Shoulders and Wella. Pantene is the No. 1 hair care brand in the world, both in shampoos and conditioners. It’s sold in about 100 countries, and is approaching $3 billion in annual sales. Pantene Pro-V comprises more than 150 SKUs, including a number of products aimed at ethnic consumers.
  

Pantene is still the No. 1 hair care brand in the world.

Head & Shoulders, introduced in 1967, is the second largest shampoo brand in the world. Especially popular with men, the brand grew double digits in 2007. It was revamped in 2006 with new packaging, formulations, fragrances and a larger variety of sizes and range of prices. According to Euromonitor, Head & Shoulders has been demonstrating particularly strong growth in emerging markets such as China, Eastern Europe, Africa and the Middle East. Developing regions showed growth not only with Pantene and Head & Shoulders, but with Herbal Essences and Rejoice, as well.
  
In 2001, P&G acquired Clairol Inc, as an entry into hair colorants. It took a few years for the brand to perform, but when P&G relaunched its Clairol Herbal Essences line in 2006 with new hair care products in brightly colored bottles and featuring trendy ingredients such as acai, sales increased. Overall, annual global sales of Herbal Essences have risen 40% since its acquisition.
  
In 2003, P&G carried out its largest acquisition prior to Gillette of Germany’s Wella AG hair care line for $5.7 billion. The purchase allowed P&G to expand into salon and professional care segments. According to Euromonitor, P&G’s hair care segment got a boost with the acquisition of Wella. However, in the company’s efforts to focus on its leading brands, speculation is that some Wella labels may be discontinued, while brands such as Pantene Pro-V, Clairol Herbal Essences, Head & Shoulders and Sunsilk will continue their geographical expansion.
  
The global market research firm adds that while hair care is a comparatively mature sector, shampoo is set to add the greatest value to the market over the forecast period, due to demand in the Asia-Pacific region. While P&G leads the hair care market with shampoos and conditioners, Euromonitor expects the company to increasingly target colorants, a category in which L’Oréal currently leads. (L’Oréal is intensifying its activity in this area with a research facility dedicated entirely to hair set to open in 2010.)

P&G Cosmetics Color the Masses

According to Mintel, during 2001-2006, makeup grew 6% in constant prices, reaching $6 billion in sales. Although the makeup market includes a vast number of competitors, only a few hold a significant market share. In FDM channels, just three account for nearly three-quarters of all sales: Procter & Gamble, Revlon and L’Oréal Paris USA.
  

Puma’s I’m Going generates interest with its battery design.

Cover Girl became a P&G brand in 1989 when P&G purchased Noxell (Noxzema and Cover Girl). According to Simmons NCS surveys, among both teens and makeup users over 18, Cover Girl consistently ranks No. 1 in market penetration across most product lines. At covergirl.com, users can download a makeup mirror and upload photos to “try on” hundreds of cosmetic shades.
  
While P&G’s 2007 annual report noted that its cosmetics volume had declined due to reduced distribution of both its Cover Girl and Max Factor brands—and the company’s advertising of these brands had also fallen during that period—things are turning around. P&G is pumping up its sales of eye makeup, which leads growth in the makeup market, with several new mascaras from both Max Factor and Cover Girl. Max Factor, which has undergone a flashy packaging and logo redesign that highlights the Max and downplays the Factor, and features “spokesdiva” Carmen Electra, has launched Vivid Impact Mascara along with a number of products in the “new” shiny black Max Factor line. One of Cover Girl’s latest mascaras, LashBlast Volume Boosting Mascara, has gone high-profile with Drew Barrymore as its sultry spokesmodel, in a B/W photo that contrasts with the bright orange tube of mascara. Observers say the multiple launches are P&G’s pursuit of the No.2 mascara slot, behind market leader Maybelline.
   
P&G continues to extend its cosmetics lines, particularly targeting consumers with darker skin tones. According to P&G, ethnic cosmetics comprise a burgeoning $1.5 billion market, and the company is constantly finding new ways to connect with various sectors. Cover Girl Queen Collection Jewels of the Sahara Lip Color Range is designed specifically for African-American skin tones. The range, which includes foundation, lip color, eye shadows and nail color, has been on the market only since June 2006, but by December 24, 2006, it had registered $2 million in sales, half of which came from the foundation. In late 2007, P&G announced the launch of “My Black is Beautiful,” a program designed to ignite and support a sustained national conversation by, for and about black women. The initiative was created to serve as the catalyst for a movement that affects positive change in the way African American women are reflected in popular culture.

P&G Scents Permeate the World

According to Mintel, while the FDM men’s fragrance market is led by Coty, Unilever and Procter & Gamble, only P&G registered FDM gains from 2005-2007. P&G continued to be on the rise with $68 million in men’s fragrance sales in 2007 (52 weeks ending October 2007). Its classic, Old Spice, grew more than any other FDM fragrance between 2005 and 2007 (76%) according to Mintel, while the company’s prestige fragrances volume was up double digits behind The One, Boss Selection and Boss Femme.
   
In 2006, P&G strengthened its image as a premium products manufacturer and took back the distribution rights to its fragrances in the U.S., formerly held by Clarins, and won the license to manufacture and market Dolce & Gabbana brand cosmetics and toiletries. P&G also holds licenses for prestige brands including Gucci, Escada, Lacoste and Valentino. New youth-oriented brands to the line include Christina Aguilera and Italian jeans label Replay.
   
Puma’s fragrance I’m Going, with men’s and women’s lines, was launched in Europe last year, in ultra modern glass bottles designed by Denis Boudard. The electrifying battery-like caps were manufactured by Seidel in a custom fuchsia/ magenta for women and a deep blue for men. Both caps have two lateral recesses featuring the Puma logo and the inscription “I’m Going.”
   
P&G’s strong move into prestige fragrance, particularly in men’s, which is an estimated $1 billion a year category, has caused speculation in the industry as to whether the company will also launch prestige color cosmetics lines in brands other than D&G to gain department store exposure. Perhaps, say industry insiders, P&G may even be poised to acquire Clarins or Estée Lauder should the opportunity arise. While P&G’s prestige cosmetics brand, SK-II lends credence to the possibilities, and even Olay and Pantene Pro-V aim toward the higher side of mass market, a recent analysis by Euromonitor says that there are “doubts as to whether a company so firmly entrenched in the mass market will have the lightness of touch required for the image-conscious world of premium cosmetics, despite the recent strengthening of its prestige portfolio.” 

Long-Term Growth Strategy

Where will the company’s focus lie in the years ahead? P&G’s Paul Fox says, “Our goal is to maintain consistent growth over the next decade and beyond.” He adds that P&G sees huge potential within the developing markets of Latin America, Asia, Eastern Europe and Africa, but that the company also anticipates continued strong growth in the developed regions such as North America and Western Europe.
   
Fox says there’s a corporate belief that companies like P&G can be a force of good in the world and effect positive changes. P&G first addressed sustainability in the ’70s and now plans to develop and market at least $20 billion of “sustainable innovation” products and complete a decade-long program of reducing the greenhouse gas emissions, disposed waste, and energy and water consumption of its operations by 40%.
   
P&G is also committed to improving the lives of hundreds of millions of children in need through its global corporate cause, “Live, Learn and Thrive,” a fitting name from a company that has followed that same formula in business for more than170 years.