Category : Marketing | ID : BLOG672535


Remember the old saw that you can't cut your way to growth? At least for one quarter, it's been debunked.

Procter & Gamble Co. posted its strongest organic sales growth in five years last quarter, despite spending 6 percent less on marketing, aided in part by signs that long-struggling Gillette is beating online nemesis Dollar Shave Club.

Here are four key takeaways:

Things were surprisingly good despite cuts

P&G sales for its fiscal first quarter (which ended Sept. 30) reached $16.7 billion, up 4 percent excluding impact of acquisitions, divestitures and foreign currency. It was well ahead of the Factset average of analysts expecting 1.6 percent growth. P&G's stock rose 7 percent by mid-day.

Continued squeezes on media, agency and production costs, combined with such things as continued headcount reductions, generated roughly the same $130 million in savings as last quarter.

P&G overall marketing spending was down 6 percent vs. a year ago, Chief Financial Officer Jon Moeller said on a media conference call. "Our total reach and frequency were probably up in the quarter," he said. "The total marketing spend required to achieve that reach and frequency, and deliver that growth and market-share gains, was down," he added, citing efficiency. P&G has made this same contention when cutting marketing spending before, but it carries more weight amid an upside sales surprise.

A price truce for now

The price warfare that weighed on P&G sales in recent quarters has abated. P&G's U.S. sales were up 4.3 percent on 5-percent unit volume growth, but Moeller said the company has pulled back on some couponing and announced new price increases on some home, oral-care and personal-care products. Globally, P&G's sales rose faster than its 3-percent unit growth as sales shifted to higher-ticket items, such as SK-II cosmetics.

Retailers aren't pushing back hard on price hikes, Moeller said on an investor call later, because they're facing the same commodity and transportation cost hikes. But how competitors will react remains to be seen. That's one reason P&G didn't raise its full-year guidance for sales growth, and why marketing budgets could remain under pressure.

Gillette gets a surprise win

The 4-percent increase in organic sales for grooming (mainly Gillette), including 10 percent in the U.S., was particularly surprising given Nielsen data showing P&G U.S. razor sales and shares down and a launch by rival Harry's into Walmart. Online sales that aren't in Nielsen's numbers, particularly P&G's own Gillette Shave Club, made a big difference.

"We're seeing significant growth in Gillette Shave Club users," Moeller said on the investor call, "and we believe based on the data we have that we're the only ones growing users in the U.S." He said prior-year price cuts, moves to offer razors at all rungs on the price ladder, and other product and marketing improvements also played a role.

Moeller sounded more confident than his counterpart, Unilever Chief Financial Officer Graeme Pitkethly, talking about Dollar Shave Club on his earnings call yesterday. Pitkethly said Dollar Shave Club had "about 10 percent growth" year to date (though he didn't specify for the quarter, and that number includes rollout into a new market – the U.K.) and the brand continues adding subscribers, but at "a slightly lower rate."

Competitors are doing well too

Overall, Unilever posted 3.8 percent organic sales growth last quarter, similar to P&G, though it's been a rarity in recent years for P&G to essentially tie its big global rival. Johnson & Johnson Consumer organic sales rose an even faster 6.1 percent last quarter, the company reported Monday, boosted in part from filling retail shelves with a revamped Johnson's Baby lineup. Moeller noted that P&G's overall U.S. market share rose by 0.4 percentage points last quarter, but pointed to strong Unilever and J&J sales results as signs that the industry is healthy.

© 2019 Sajid Rashid. @visitsajid