Health and Beauty We examine the trends underlying the growth of the global health and beauty marketplace, highlighting the critical innovations and behaviours that are driving industry evolution.

Should Procter & Gamble Divest its Fragrance and Colour Business to Improve Growth?

4/22/2013
Oru Mohiuddin Profile Picture
Oru Mohiuddin Bio
Share:

A key factor contributing to Procter & Gamble’s less encouraging performance than its competitors in recent quarters has been a lack of synergy between the product categories in its  portfolio. Procter & Gamble’s results have been less satisfactory since the onset of the economic downturn, leading the company to undertake a number of measures, including streamlining its portfolio and launching a new restructuring programme in 2012. In the most recent October-December quarter in 2012, Procter & Gamble was more upbeat but reported growth for the overall company was flat and for its beauty and grooming division was -0.4%, compared with 10% overall for Unilever, 14% for Unilever’s personal care business and 9% for L’Oréal over the same period.

Lack of synergy in Procter & Gamble’s portfolio

Premium fragrances appear to be a misfit in Procter & Gamble’s portfolio, requiring a different distribution platform to its other products. Moreover, Procter & Gamble generates only 6% of its total beauty and personal care revenue from premium fragrances. Unilever, with a similar operational structure to Procter & Gamble, previously had a presence in premium fragrances but divested the business to Coty in 2005 in a drive to streamline its portfolio. Divesting its premium fragrances enabled Unilever to group its categories according to a common distribution platform, thus helping the company to achieve distribution synergies. Unilever’s objective is to achieve more in-depth category coverage in supermarket aisles by covering the various pricing platforms and sub-categories. For example, in hair care, it is present with mass and masstige salon-inspired brands such as VO5 (outside the US), TRESemmé and Nexxus, while in retail hair care Sunsilk has a mass price positioning and Dove  more premium positioning. By narrowing its focus to supermarket categories, Unilever was better placed to establish a stronger presence while benefiting from greater distribution synergies.

L’Oréal benefits from a concentrated R&D focus

Procter & Gamble is also coming under greater competitive pressure from companies heavily focused on beauty, such as L’Oréal. Mass facial care and colour cosmetics are increasingly being driven by product sophistication, requiring greater investment in R&D and more frequent product launches. One of L’Oréal Paris’s new launches is Age Perfect Renaissance Cellulaire for women over 50, with Julianne Moore its brand ambassador. Age Perfect Renaissance Cellulaire claims to restore intercellular communication and boost cellular vitality by protecting mother cells and providing energy to cells to maintain their metabolic rate. In addition, L’Oréal’s mass brands copy the formulations of premium brands, which adds to the value proposition in the mass segment while also raising the bar for competitors. For example, the formulation of Génifique, offered under the Lancôme label, is similar to that of L’Oréal Paris’s Youth Code. In colour cosmetics, L’Oréal launched Maybelline New York Superstay 24hr Lipcolour, which claims to stretch the limits of longwear.

Although Procter & Gamble has launched a number of new products, it has been unable to maintain the same pace of innovation, made more difficult by having to balance R&D resources across its highly diverse portfolio, ranging from laundry care and shaving to oral care and skin care. Consequently, Olay saw its share of US facial care fall by 0.9 percentage points in 2012 while that of L’Oréal Paris rose by 0.3 percentage points. Similarly, Olay’s share in facial care in China, projected to drive absolute growth of skin care globally, and where Olay is the leading brand, fell by 0.6 percentage points compared to a 0.3 percentage point gain for L’Oréal Paris. A similar situation was also evident in colour cosmetics, where Procter & Gamble’s key colour cosmetics brand Cover Girl lost 0.6 percentage points compared with a 0.2 percentage point gain for Maybelline in the US market.

Looking forward

In light of this, divesting premium fragrances, following Unilever’s example, could be the way forward for  Procter & Gamble. However, beyond that, it could also consider withdrawing from core beauty categories entirely. Colour cosmetics account for 6% of Procter & Gamble’s total beauty and personal care sales compared to 10% for skin care. Given that Olay is a globally recognised brand and its key colour cosmetics brand Cover Girl is mostly based in the US, it could consider divesting its colour cosmetics business and investing the proceeds in making its skin care brands more competitive. This way, the company could benefit from a portfolio that shares a common distribution platform, while also retaining its skin care business.

Interested in more insights? Subscribe to our content

Latest Insights

Cosmoprof Asia Digital Week

Euromonitor International 22 October 2021

Wabel Beauty and Personal Care Summit

Euromonitor International 07 October 2021

Beauty Accelerate Virtual

Euromonitor International 29 September 2021

Shop Our Reports

Voice of the Industry: Home Care 2021

In the Voice of the Industry Survey series, Euromonitor connects with industry professionals to explore trends and innovations. This report focuses on the home…

View Report

Personalisation in Beauty: The Next Frontier

Beauty personalisation is gaining ground, supported by the rise of digitalisation and technological advances, and consumers are willing to pay more for the…

View Report

Beauty and Personal Care Quarterly Statement Q3 2021

This briefing provides updates on Euromonitor’s August 2021 forecast restatement for the Beauty and Personal Care industry. A more positive economic outlook…

View Report
Passport Our premier global market research database with detailed data and analysis on industries, companies, economies and consumers. Track existing and future opportunities to support critical decision-making across all functions within your organisation Learn More