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The Strategy Behind P&G’s Divestments

Posted: August 7, 2014

In a video on its website titled “Three Challenges Answered by Procter and Gamble’s Divestment Strategy,” Euromonitor International addresses the challenges Procter & Gamble (P&G) is seeing that will be helped by its plans to divest many of its current brands.

Ian Bell, global head of home care, tissue and hygiene research for Euromonitor, explains in the video, “So we could be seeing the divestment is the new acquisition—seeing companies like Procter & Gamble increasingly divesting a number of smaller brands from their portfolio. This is certainly necessary as companies look to rationalize, look to change business focus. But these divestments don’t come out without a certain amount of short-term pain. These brands, these business units need to be detangled and sold off from their parent group, but obviously companies like Procter & Gamble, like Unilever, think the short-term pain is worth the long-term gain, which they’ll benefit from.

“When you think about why it’s necessary—it’s necessary because the competitive environments change; their geographical focus is changing; and also the companies are looking to change probably their medium- to long-term strategic direction also,” Bell acknowledges.

Turning to the specific case of P&G, Bell says, “Now if you think about Procter & Gamble specifically here, you’ll see that the rationalization for their brand portfolio really fits in well with what we see as a company mantra of efficiency, of innovation importantly here. So you look at innovation in many terms—‘innovation’ is probably overused in many cases; typically it relates to new product development. But we can see Procter & Gamble looking at [a] changing of human resources, changing of or rationalization of the distribution structure. It’s all, for them, it’s all innovation, and I think it changing [the] product portfolio and the divestment of brands can also be seen as another aspect of innovation in Procter & Gamble’s eyes.

“I think it’s very straightforward that meeting certain challenges for the company, which is trying to make the best of its position in developed markets, which are often quite saturated, focuses the mind on a smaller core group of brands. Also, how can they make the best of positions in developing markets like China, where in some key countries I think they’ve fallen by the wayside a little? And also we have the third issue, which is more stringent, more competitive local players moving into spheres that Procter & Gamble might have normally think [of] as their own. So how are they going to cope with these three key challenges? I think that rationalization of that portfolio will certainly help in this respect.

“Other manufacturers in the same area are also following similar policies, like Unilever, for example. While all the talk’s been of divestment, I still think there are one or two mega deals in the offing in the home care industry. But if we’re looking at big consumer products companies, still their key competency will be getting the right products—effective products, even inspiring products—in front of the consumers at the right price. And I can only say that more home care-focused companies will have the best opportunity of achieving this,” Bell concludes.