In 2009 Q3, P&G reported an organic sales increase of 2%, less than its long-term target of 4-6%. Despite the company's ability to boost overall sales by hiking up prices, organic volume sales fell 2% in the quarter. Most of the volume decline was driven by declines in developing and emerging markets, where the company increased prices to bolster profit margins.
If P&G is to hold onto emerging markets as its frontier for growth, it should be very mindful of price increases in these areas, which appear to have turned away some of these customers in the most recent quarter.
Proctor and Gamble announced in December 2008 it would fall short of sales expectations for the month. A slowing economy worldwide has caused consumers to scale back on spending, even for household staples. Consumers are increasingly choosing less-costly "store brands" or "value brands" over name brands that P&G offers. Chairman and CEO A.G. Lafley said "We have always said that P&G is recession resistant but not recession proof."
P&G has been struggling to gain market share in Latin America, a key developing market that will be a major area of sales in several years as economies there further develop.
As part of the Gillette acquisition P&G acquired the Duracell line of batteries, which are low-margin products that will drag down P&G's overall profits.
Consumers have shifted to store brands as the recession has deepened. The quality of private label brands has increased significantly over time and consumers have noticed this. There will be little reason or motivation to return to name (e.g. Procter and Gamble) brands as the economy improves.
