Procter & Gamble (NYSE:PG) is the world's largest producer of household and personal products by revenue, with its products reaching 4 billion people worldwide. P&G's product line includes 23 brands across beauty, healthcare, and food including Tide detergent, Pampers diapers, and Gillette razors, that generate over $1 billion in revenue annually, with the company's reporting net income of $13.4 billion on revenue of $79 billion in 2009. 
One of the key areas of growth for the company is in emerging markets worldwide. Sales in developing nations have increased steadily from 20% of total revenue in 2002 to 32% in 2009. P&G already owns large and growing market share in countries including China and Russia. P&G has created products such as Downy Single Rinse, low-water volume detergent, and Naturella, a low-income feminine protection product, specifically for developing nations.  In light of the global economic downturn, P&G has announced it will focus its growth strategy on emerging markets, opening almost all of its 20 new manufacturing facilities outside its established markets. 
Procter & Gamble attempts to maintain its competitive edge by focusing on product innovation. To this end, P&G spends almost twice as much on research and development spending ($2.0 billion in 2009) as its closest competitor.  (Its biggest competitor, Unilever, spent about $1.3 billion USD in 2008.)   Through its "Connect + Develop" initiative, P&G looks to bring in new product ideas from outside the company. Connect + Develop has led to the development of 42% of new P&G products in recent years.   In February 2010, the company said it will launch a "flurry" of new products globally, using innovation to boost sales in fiscal 2010 coming out of the global recession.
In July 2009, CEO A.G. Lafley stepped down from his post after 29 years with Proctor & Gamble. He was succeeded by current COO Bob McDonald. The company expects sales to be up 0 to 3% in fiscal 2010,  with sales back up in the fall of 2009, fed by price cuts, new products, and value-focused promotions. 
In fiscal 2009, P&G's net sales fell 3% to $79.0 billion driven by a 3% decline in unit volume and a 4% decline in net sales from the rising US dollar. Organic sales, a closely watched figure which excludes the impact of acquisitions, divestitures, and foreign exchange, increased 2%, which is below its target organic sales range of 4-6%.  Earnings for fiscal 2009 increased 11% to $13.4 billion.  Advertising spending rose by $1 billion in fiscal 2009, which dragged on net income in the fourth quarter.
The company's fiscal 2010 third quarter net income for the period ending March 31, 2010, fell slightly to $2.6 billion ($0.83 per share) from $0.84 per share in the previous year. The company beat average analyst expectations of $0.82 a share for earnings, but disappointed in sales and full-year guidance. Revenue rose 7.9% to $19.2 billion from $17.8 billion, falling short of analyst expectations of $19.5 billion. For the current quarter, as the United States emerges from recession, investors have placed a greater emphasis on sales growth for consumer products companies. Organic volume growth was at 7%, the fastest in 18 quarters.
With $79 billion in sales across the world in 2009 and 24 brands with $1 billion of sales each, P&G is a global giant for household and personal goods. P&G divides its business into three Global Business Units (GBUs) that develop and produce products and its Corporate group which handles the operation and administration of the company.
Procter & Gamble Co. was the world's top advertiser in 2007, spending almost $9.4 billion worldwide. The company outspent its largest competitor, Unilever, the second-highest advertiser, by almost two-to-one (Unilever spent $5.2 billion). 
|Net Sales ($M)||% Total Sales||Net Earnings ($M)||% Total Earnings||Sales Growth from 2008||Billion-Dollar Brand(s)|
|Beauty||18,789||23.6%||$2,531||22%||-3.72%||Head & Shoulders, Olay, Pantene, Wella|
|Grooming||7,543||9.5%||$1,492||13%||-8.61%||Gillette, MACH3, Braun, Fusion|
|Health Care||13,623||17.1%||$2,435||22%||-6.55%||Actonel, Always, Crest, Oral-B|
|Snacks, Coffee, and Pet Care||3,114||3.9%||$234||2%||-35.82%||Iams, Pringles|
|Fabric and Home Care||23,186||29.1%||$3,032||27%||-2.71%||Ariel, Dawn, Downy, Tide, Duracell, Gain|
|Baby and Family Care||14,103||17.7%||$1,770||16%||1.48%||Bounty, Charmin, Pampers|
|TOTAL||79,748||99.1%||$11,293||100%||-4.50%||23 brands over $1B|
On June 4, 2008, P&G sold its Folgers coffee unit to J.M. Smucker Co for $2.95 billion. As part of the deal, P&G shareholders will receive a 53.5 percent stake in Smuckers and the company will assume $350 million of Folger's debt. 
Procter & Gamble acquired Gillette in 2005 for over $50 billion in its largest acquisition to date. In 2004, the last full year before the acquisition, Gillette generated over $10 billion in sales, about $6 billion of which came from razors and Duracell and Braun products and the remainder sourced from the Oral-B brand, which was moved into the Health & Well-Being segment. A key piece of the acquisition beyond Gillette's product lines was its distribution network and supply chain. Gillette's distribution network and supply chain in emerging markets had been extremely successful for Gillette and, once acquired, has worked to complement P&G's own distribution network.
In 2009 P&G sold its pharmaceutical unit to Warner Chilcott Plc for $3.1 billion in cash. The company expects to book a 43 cent per share earnings boost in Q2 of fiscal 2010 as a result of the sale.  The deal allows P&G to focus on its personal care, beauty, and household product divisions. In 2006, the company started winding down its discover-phase pharmaceutical products in favor of licensing late-stage compounds, and announced in 2008 it would exit the drug industry entirely.
In January 2010, the company announced it would pursue its own online retail store to sell its consumer products to US end-users, putting it in direct competition with major retailers in reaching consumers. P&G CEO Bob McDonald said the company could increase its online sales "substantially" over the next few years. In fiscal 2009, P&G's existing online sales accounted for $500 million, or 0.6% of total revenue. The company plans a full scale launch in spring 2010 after a pilot test with 5000 consumers. 
Household staples are somewhat protected from the US recession and global economic downturn. However, in a recession consumers often turn to cheaper private label or store brands instead of "brand name" products from P&G. To combat private label encroachment, P&G offers at least two product forms in many product categories. For example, the company has seen increases sales in Luvs from Pampers diapers and an increase in Gain detergent sales from Tide. In addition, P&G offers "Basic" versions of its Charmin toilet paper and Bounty paper towels. The company's broad offerings, combined with the necessity of household items, provide a degree of insulation against recession.
The rise of a handful of powerful low-priced retailers has negatively impacted consumer products companies. A handful of big retailers have captured a large share of the market. For example, from 1999 to 2004, the top 10 food retailers in the US increased their share of food retail sales from 53.4% to 58.9%. These large retailers have shifted the balance of power within the supply chain. For example, the company's largest customer, Wal-Mart, accounted for 15% of net sales in 2006, 2007, and 2008.  Wal-Mart has exerted its power over other suppliers to their detriment in the past, such as forcing record companies to produce clean-label CDs and pulling adult magazines. A decision by Wal-Mart not to sell a particular P&G consumer product would prevent P&G from reaching its entire target market. In addition, many retailers have pushed their own higher margin private label brands in competition with P&G.
In the past decade, P&G has faced stiff competition from private label brands or "store brands" of large retailers such as Wal-Mart, Target, and supermarket chains. Private label products often sell at lower price points and earn higher margins because the retailers can control the cost of their production. For example, Wal-Mart offers 5,500 products through its "Great Value" brand, which has increasingly sold as consumers feel the recession squeeze on their disposable income. From 2003 to 2008, sales of Target's private label products rose an average of 15% annually. 
Large retailers are close to the consumers, have the point of sale data on consumer behavior and are in better position to understand consumer behavior. These strengths contribute to better private label product development, which directly compete with P&G products. Retailers also promote their own brands as they earn higher margins on them. P&G has addressed this issue by continuously investing in Research & Development and introducing new products as well as offering different versions of its own products at different price points. 
P&G has a well-established market presence in developed countries such as the United States and Western Europe and is looking to its presence in emerging markets. In fiscal 2009, 32% of total net sales came from developing nations, a figure that has increased steadily from 2002 when sales in developing nations accounted for only about 20% of total revenue (approximately $8 billion).  CEO Bob McDonald said in 2010 that he wants P&G to grow sales in China and India to reach 1 billion more customers by 2014.
In China and Russia, P&G's market share has been consistently increasing in the past five years as Procter & Gamble has put an increased emphasis on establishing its products in those markets. In 2008, the company's distribution network reached 800 million people in China and 80% of the population in Russia. P&G has created products designed specifically to target developing nations. For example, in many countries consumers wash clothing by hand with limited amounts of water. In response, P&G has launched Downy Single Rinse in Mexico, China, Philippines, and 9 other countries.  While the average Mexican spends about $20 a year on P&G products, Chinese per-capita spending is only about $3 and India per-capita spending $1.  Increasing sales in China and India to the levels in Mexico would add $40 billion in sales to the company's overall revenue. 
In 2009, P&G spent approximately $2.04 billion on Research & Development, nearly $1 billion more than its closest competitor, Unilever.   The two most important factors in P&G's innovation process are its practice of consumer demand research and its "Connect and Develop" R&D structure. First, when entering new markets, P&G sets up in-home visits with consumers in order to fully understand the needs and desires consumers have for household and personal products. This way, P&G gets directly to its customers and is able to cater to their needs. P&G also incorporates consumers' input into the R&D process through its "Connect and Develop" initiative. Through "Connect and Develop" P&G has an online interface set up where people can submit product ideas and provide input on topics that P&G places on the web-portal. P&G staff then sort through the ideas and work with the most promising ones. This process is not responsible for all of the R&D that P&G does, but approximately 42% of new products in the last several years were influenced by or originated from "Connect and Develop." 
Early returns on new products released in 2009 are encouraging. Tide Stain Release, a stain-removing detergent released in July 2009, has garnered 10% market share in the US as of November 2009.  The Bounce Dryer Bar, an automatic laundry freshener released in August 2009, has captured 7% of the North American fabric sheet market as of November 2009. 
A diversified consumer products manufacturer, P&G depends heavily on a wide basket of global commodities for manufacturing its goods. Higher commodity costs subtracted 0.5% from gross margin growth. Nearly half of the company's cost of goods is directly related to commodity goods. The company has increased prices due to higher costs of oil and other raw materials. P&G instituted broad price adjustments in Q1 2010 to close widening price gaps in several businesses, including North American laundry, tissue, and towel, and several Eastern European markets. Analysts believe pricing adjustments are largely behind P&G as of Q2 2010, with an impact on about 10% of P&G's products.Jefferies analyst report, 10 Nov 2009</ref> As the market leader, the company does benefit from pricing power and can moderate commodity inflation better than its competitors.
Some commodities of note:
Procter & Gamble provides the broadest and biggest portfolio of products in the household and personal care industry with 24 billion-dollar brands. P&G generates approximately one and half times the revenue than its closest competitor, Unilever (UL), and possesses a higher operating margin (20.30%) than any of its competitors as well. The company invests about $2 billion a year in R&D, nearly twice that of Unilever, and equal to the combined total of its other major competitors — Avon, Clorox Company (CLX), Colgate-Palmolive Company (CL), Energizer Holdings (ENR), Henkel, Kimberly-Clark (KMB), L'Oreal, and Reckitt Benckiser.
Clorox is one of P&G's main competitors, specifically the two companies compete directly in the household products market, especially in household cleaning products. In 2009 Clorox's sales totaled to $5.5 billion, roughly half of which came from sales of household products such as their trademark Clorox bleach products and other cleaning supplies like Pine-Sol. Although much of the two companies' product catalogs overlap, there are significant differences that prevent Clorox from being in complete, direct competition with P&G. For example, one of the largest sectors of P&G's business is beauty products, which are not part of Clorox's product offerings.
Kimberly-Clark competes with P&G in the household products market, particularly in tissues, paper towels, diapers, and feminine products. KMB reported 2009 sales of $19.1 billion. Major K-C brands include Huggies diapers, Kotex feminine products, Scott paper towels and Kleenex tissues. Kimberly Clark sells its products to both consumers and large businesses.
Colgate-Palmolive produces a product catalog that most overlaps with P&G's product lineup relative to other competitors. In 2009 C-P reported a total revenue of $15.3 billion. Colgate is best known for its flagship toothpaste, which had a 44.4% global market share in 2009, but the company also manufactures toothbrushes, dental floss, detergents, soap, and pet care products.
L'Oreal competes with P&G in the beauty products market. In 2009, L'Oreal reported total revenue of $17.5 billion euros. L'Oreal's two biggest product categories are skincare and haircare products. Unlike diversified companies like P&G, L'Oreal is purely a beauty and cosmetics company with its product catalog centered around skincare, haircare, make-up, perfume and other beauty products. However, the beauty industry has much higher margins than certain markets that P&G is involved in, which leads to high profits for L'Oreal.
|Revenue ($M)*||Net income ($M)*||Operating Margin||R&D Spending ($M)||R&D as % of Total Revenue||Year-over-year Revenue Growth||Major Brands/Products|
|Procter & Gamble ||$78,938||$12,736||20.30%||$1,950||2.5%||3.33%||Pantene, Crest, Tide, Downy, Bounty, Folgers, Gillette, Duracell|
|Unilever NV (UN)**||€39,823||€3,659||12.6%||€891||2.2%||-1.73%||AXE, Lipton, Slim-Fast, Vaseline, Dove, Ben & Jerry\'s|
|Clorox Company (CLX)||$5,534||$603||16.7%||-||-||1.54%||Clorox Laundry Bleach, Pine-Sol Cleaner, Glad Plastic Bags, Brita Water Filters|
|Kimberly-Clark (KMB)||$19,115||$1,884||14.32%||$277||1.52%||9.07%||Huggies Diapers, Kleenex Tissue, Scott Paper Towels|
|Colgate-Palmolive Company (CL) ||$13,790||$1,737||14.8%||-||-||-1.5%||Colgate Toothpaste, Colgate Toothbrushes, Irish Spring Soap, Palmolive Soap, SpeedStick Deodorant|
|L'oreal (LRLCY)**||€17,473||€2,578||14.8%||€609||3.5%||-0.39%||Garnier Fructis, L\'Oreal Paris, Maybelline, Ralph Lauren|
*Fiscal 2010 financials available for PG. All others are fiscal 2009.
**L'Oreal and Unilever financials reported in euroes.