Procter & Gamble’s announcement about divesting 100 brands suggests that it still has more to do going forward as it looks to cut costs, according to an industry expert.
Oru Mohiuddin, Beauty and Personal Care senior analyst at Euromonitor, questions that although the announcement was timely, it was interesting that this was not mentioned when the restructuring process began rather than now.
“It highlights the fact, even after accomplishing part of its restructuring objectives, the divestments and cost cutting measures did not appear enough and the company needed to do some more,” she says in a video on the Euromonitor blog .
The announcement came after costs of products sold increased and gross profit was negative for the fiscal year ending 2014, and has seen the financial world respond positively to the decision to slim down the brand portfolio.
It seems it is time for the consumer goods giant to catch up with the times as one of its key issues is that its model has not evolved with the market dynamics, according to Mohiuddin.
“Traditionally, Procter & Gamble operated in the higher end of the mass pricing spectrum in its key categories boasting its breakthrough formulations and sophisticated product technology, justifying the higher margin,” she says.
Then the recession kicked in and this took its toll on P&G as price-conscious consumers opted for cheaper alternatives while competitors matched its prices.
It is the company’s hope that by slashing its portfolio by more than half, it will make the business more efficient.
“Divestments of these 100 brands in addition to all other cost cutting measures are part of its strategy to release resources to help place more in depth focus on its core areas,” adds Mohiuddin.
“Going forward the company would benefit from a more comprehensive approach in developing a greater in depth presence in its key categories targeting a diverse consumers base in terms of preferences and affordability.”
During a press conference in Cincinnati, last Friday, company executives elaborated that they want to eliminate around 100 minor brands from the portfolio , in an effort to focus on the bigger and more profitable brands that the company already holds.
The brands the company will be holding on to number approximately 70 to 80, and the company indicated that they already represent somewhere in the region of 90% of the annual revenues for the business.
Although the company executives did not elaborate on which specific brands that they wish to eliminate from the portfolio, the beauty division, which is the biggest of the company's five divisions, has been underperforming during the course of this year, which could spell a shake up for that portfolio.