Procter & Gamble's Strong 2023: Higher Prices and Resilient US Market Lead the Way
"Stronger innovation and superior products will drive the market," the CFO said.
Bolstered by higher prices and a resilient US market, Procter & Gamble's 2023 highlights the benefit of strong brands. Despite more price increases, the company booked net sales of $82.0 billion for the year, marking a 2% increase since last year. "We believe that more awareness on stronger innovation and superior products will drive the market," CFO Andre Schulten said, "and therefore, will drive our growth in a constructive way."
Perhaps most impressive, the Pamper’s manufacturer saw gross margins expand to more than 48%--a return to near pre-pandemic levels. Executives attributed the expansion to price increases, and what I call the Optimization Imperative--an ambitious strategy to build a fully integrated consumer goods manufacturer. That means rethinking how data is shared across the organization, how it translates into products, ultimately leading to more efficiency.
E-Commerce is now just commerce.
Synchronized Growth: E-commerce's meteoric 7% growth mirrors the overall business growth rate, signaling a synchronized rise in both domains. E-commerce constitutes about 17% of total sales.
Equitable Margins: P&G aims for parity between channels, working towards equal attractive margins across platforms. This emphasizes a consumer-centric approach, where choice reigns supreme, be it online or in-store.
Transformation: E-commerce's transformation from an auxiliary channel to a core business avenue was always obvious, but now it's a reality. Large retailers are now prioritizing the channel, which means P&G has to simplify SKUs to ensure it's managed properly.
SKU Rationalization: Precision in Complexity
Strategic Pruning: Acknowledging that a fraction of SKUs contributes significantly to retail sales, P&G wants to focus its efforts on the top-performing SKUs. The bottom 25% of all SKUs are at risk of being de-listed. This means there will be less selection on retail and online shelves, but it is a tradeoff now that most retailers are shipping online orders through stores.
Data-Driven Insights: This isn't just going to be done on a spreadsheet. The company is leveraging images and point-of-sale data and using algorithms to refine the selection process. Maybe something is selling poorly because it's not being merchandised correctly.
Global Application: SKU rationalization isn't confined by strict definition. They pledged to be flexible.
Pricing is a key component of growth.
Price Dependent: Across all geographies, the company increased prices by about 7% while volume decreased by 1%.
Innovation-Driven Pricing: P&G management is trying to spin this as a reflection of their robust innovation. While that's partly true, it doesn't change the fact that many people are questioning if it's sustainable. Over 48 of the last 51 quarters have seen pricing play a vital role in driving growth.
They said it:
CEO Jon Moeller on e-commerce and omnichannel:
It's getting harder and harder to distinguish between e-commerce and traditional commerce, if you will, even in our conversations with our retail partners. Most of the large brick-and-mortar retailers are emphasizing the development of e-commerce in different forms themselves and have had significant growth behind those efforts. So honestly, I have not been in a conversation that is zero sum in nature or that is, in any way, combative in nature, more of the conversation is how can we work together to fully satisfy our shoppers, many of whom prefer an e-commerce experience.
From a Pure business standpoint, we aim to be indifferent between channels. We want to have an equally attractive margin, which we generally do at least in aggregate, and we want a share profile in the different channels that allows us to be in difference, and allows us to support consumers and shoppers and whatever their choice is, wherever they want to go. That's always work to do, but we stand today in a very good place.
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