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P&G sees volumes decline, but is still committed to innovation
P&G hopes efficiencies and innovation can offset significant volume declines after two years of price increases.
Despite a core strategy of charging higher prices for more innovative products, Procter and Gamble may have found consumers' breaking points. For the quarter, the maker of Tide detergent increased prices by 10% and saw overall sales volume decline by 6%. Management downplayed the trend. Blaming various factors—including the ongoing war in Russia and China lockdowns—for the company's slip in volume.
However, a host of productivity improvements means the future is bright, according to the people in charge. "That's going to be our job here over the next few quarters," CFO Andre Schulten told investors, "continue to drive household penetration to reinvigorate overall volume growth in the category."
The company still plans to lead by innovation. "I am not interested in volume share at the expense of value share," CEO Jon Moeller reiterated. This is a good thing, because the strategy positions P&G to still grow sales, still conduct itself as a category leader, despite withering volume.
Innovation pushed Volumes and Prices up throughout the pandemic—but some categories are regressing.
In 2022, P&G introduced Dawn Powerwash, a dish soap reformulation with an improved bottle. Supported by huge advertising support, the product saw immediate adoption.
Regular Dawn dish soap retails for around 15 cents an ounce. At about 40 cents an ounce, Powerwash commands almost a 3x premium.
The new product helped grow the brand by 50% while capturing 90% of the category's overall growth.
CEO Moeller described the product as "a premium priced item that was introduced largely during difficult economic times as a standalone brand." Right now, it would be the third largest brand in dish soap—if it was a standalone company.
After an initial hot start—boosting volumes and prices—the category retturned to trend. Fabric and Homecare increasingly rely on price increases.
Private label share is increasing, but still not a major concern.
Private label, aka retailer's own brands, account for about 16% of overall US consumer sales.
Recently, private label share within P&G categories has increased by about 2%.
P&G expects strong margin improvement in 2023.
In Q2 of 2023, the company saw overall margins slightly contract from 24.6% to 23%, compared to last year's period.
This narrative is consistent with what I've dubbed an optimization imperative. P&G's attempt to build a more agile organization through cutting edge technology.
Margins slightly expanded within Fabric and Homecare, which saw product (Dawn Powerwash) and process innovation (in-house ads).
Fabric Care brought all media buying in-house, which generates $65 million in yearly savings, allowing the company to use first part data to target advertising better.
They said it
CFO Andre Schulten on how retailer conversations have changed:
We don't see much change in retailer conversations. It's focused on how do we best play the role that we need to play as a category leader in many of the markets by combining pricing with innovation, executing pricing in a way that consumers can appropriately choose from different price points, different value tiers, and how that plays out at retail shelf, both virtual and physical shelves in the best possible way, so we can help them grow their category, grow foot traffic, et cetera. Those are really the majority of the conversations.