P&G Says It Sees Hopeful Signs In Very Challenging China Market
August 02 2016 - 9:10PM
Dow Jones News
Procter & Gamble Co. is clawing its way out of a hole in
China as it and other global consumer-products companies struggle
to make sense of the critical but increasingly tough market.
Global makers of products from diapers to toothpaste have been
hit by a trifecta in China of slower consumer spending, heightened
competition and a rapid shift toward online shopping. The dynamics
have triggered a price war in the country and are taking a bite out
of earnings for companies such as P&G, Colgate-Palmolive Co.
and Unilever PLC.
Procter & Gamble, which in the past year fell behind its
rivals in China, said Tuesday that the company has begun to stem
market-share losses. "It is progress, but nothing worth celebrating
yet," Chief Executive David Taylor said.
The company said its organic sales in China were down 5% for the
fiscal year that ended June 30, but that each quarter was an
improvement over the previous period. It said organic sales were
flat in the most recent quarter. Greater China comprises about 8%
of P&G's sales.
"There is a meaningful and long-term shift under way there and
it's been happening for years," Mr. Taylor said in an interview.
"We are late to the party but we are pivoting."
Several of P&G's global rivals have reported that China has
become a problem area. Kimberly-Clark Corp. was forced to cut
diaper prices there to hang on to market share, Chief Executive
Thomas Falk told investors last week. Colgate said sales declines
in China offset gains elsewhere in the Asia-Pacific region in the
latest quarter.
Mr. Taylor said his company is finding success in China with new
products and improved marketing, such as a campaign for the
high-end SK-II skin care brand. P&G's ad highlighted unmarried
women older than 25 years, referred to as "leftover women," and the
so-called marriage market where parents place elaborate personal
ads in an effort to find suitors for their daughters. The emotional
ad went viral. Since the launch, Mr. Taylor said, sales of the
products are up 30% at SK-II counters in China.The launch of Oral B
Gum Care, a premium line of toothpaste, has helped the company in
the dental-care category in China, Mr. Taylor said.
The gains are an improvement from earlier this year, when the
CEO told analysts that the company had lost ground in all
categories in China after failing to keep pace with rising income
levels.
On Tuesday, P&G reported a profit of $1.95 billion for the
quarter ended June 30, a jump from the same period a year earlier
when the Cincinnati-based company earned $521 million after taking
a roughly $2 billion charge related to its Venezuelan operations.
Revenue slipped 2.7% to $16.1 billion. The maker of Tide and
Pampers predicted that organic sales—a closely watched metric that
strips out currency moves, acquisitions and divestments—will
increase 2% in the fiscal year started July 1. The uptick would be
an improvement to the 1% growth for the year ended June 30, but
well below P&G's historic gains.
P&G's efforts in China are stunted by growing competition
from local players and a shift by consumers who are abandoning
traditional retail outlets, leaving companies saddled with excess
inventory in stores and scrambling to figure out the most effective
way to sell online. The effects are particularly acute in the
middle and low ends of the market, executives say.
Unilever Chief Executive Paul Polman said the quick shift to
e-commerce, under way now for more than a year, remains "confusing"
for the maker of Dove soaps and Lux shampoo.
"It is very hard to read the Chinese market," Mr. Polman said on
a call with analysts. "You can go to China now and really see empty
stores when you go into hypermarkets and supermarkets that we've
not seen before."
Write to Sharon Terlep at sharon.terlep@wsj.com
(END) Dow Jones Newswires
August 02, 2016 20:55 ET (00:55 GMT)
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