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Splitting of Procter & Gamble Not Commercially Beneficial

10/22/2015
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As Procter & Gamble gets ready to announce its first quarter results for the current fiscal year, it has been reported that the call from investors to split the company has been gaining momentum, as another round of negative sales growth is anticipated. Share price has been falling and the sluggish pace of the company’s beauty division is said to be impacting the otherwise better performing home care division. Hence a split is expected, to save the home care division from being burdened by the less successful beauty division. The question for Procter & Gamble is whether this is the best course of action. The following section draws on Euromonitor Competitor Analytics to provide an answer.

Laundry and hair care are two of Procter & Gamble’s leading divisions

Figure 1 illustrates Procter & Gamble’s divisional split across industries and the size of the boxes represent the weight of the divisional sales to the company’s overall sales. Green and red represent positive and negative growth rates respectively and the shades of each of these colours are the extent of gain and loss.

 

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  • From the above visual it is clear that laundry detergents and hair care are two of the company’s leading portfolios.
  • Looking across all its divisions, company sales can be seen to have recorded positive growth at retail sales prices.

The US needs greater focus across both hair care and laundry detergents

But delving down to country level shows that there are some pockets the company needs to focus on for both laundry detergents and hair care, as seen in figures 2 and 3.

Figure 2

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Figure 3

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Looking at figure 2 and figure 3 in tandem clearly shows that while Procter & Gamble has recorded positive growth in the emerging markets across both categories, the US is a market that needs a strong focus, particularly because it is one of the largest markets across both categories.

Recommendations

  • The above visuals illustrate that it is not just the beauty division that has been facing challenges. The trends are similar across both categories, which have performed positively in emerging markets but are coming under pressure in the US.
  • The US is a highly competitive market, reaching a high level of maturity for both categories. Growth in this market means combining multiple strategies including sophisticated product ranges at higher pricing tiers, but also carrying a range of offerings accessible to consumers at different income levels.
  • The company needs to invest in both product development and understanding of market demography influencing consumer demand. Splitting up the company could potentially compromise savings on procurement, production as well as distribution, which it can in turn invest in research and development and market research to drive future growth.
  • Moreover, the additional splitting and administrative cost may not be ideal for the company at the moment.
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