P&G Reaches Out to Poorer Nations

P&G Has Toothbrush, Personal Care Produts, and Warehouse Operations in Iowa City

By David Holthaus Cincinnati Enquirer

Procter & Gamble has embarked on what it's calling "the most ambitious expansion plan in company history" - an aggressive campaign that will extend the reach of the consumer goods company into some of the world's poorest countries.

Already one of the nation's largest companies, with more than $80 billion in annual sales, P&G plans to more than double its sales to $175 billion over the next 15 years.

The core of the strategy is a major push into countries that don't yet buy detergent, shampoo, diapers and razors in the same quantities as U.S. consumers do, if they buy such products at all.

India, most of Africa, much of Eastern Europe and the Middle East are targets of P&G's growth plans.

"P&G's center of gravity will shift toward developing markets," said Chief Operating Officer Robert McDonald.

Finding new customers in the world's undeveloped countries is the key to P&G's goal of growing about 5 percent a year, a goal that will help maintain P&G's employment base in Greater Cincinnati, where about 40 percent of the 13,000 workers here touch global business.

These countries have billions of potential consumers, most of whom have not yet purchased a P&G product such as Tide, Pampers or Head and Shoulders.

"There's more potential in these markets to get people to use our products than there is to take market share from our competitors," McDonald said.

P&G has operated in developing countries for years. It began selling in China 20 years ago and it's been in Nigeria, one of the more democratized nations in Africa, since 1993. But this push steps up P&G's investments, as it plans to build 20 new plants in the next few years, most in developing nations.

In December, for example, P&G broke ground on a $100 million detergent and diaper plant in Pakistan, its second plant in that country, at a site that allows for expansion. In March, it began building a shampoo plant in Romania and announced plans for a $20 million diaper plant in South Africa. It also has plants under way in Poland, Mexico, Brazil and Thailand.

Driving the shift is basic demographics. Most of the world's population lives in countries that P&G considers "developing" markets, nations outside North America, Western Europe, Japan and Korea. About 90 percent of the world's babies are born in these countries, creating a market ripe for P&G products.

Indeed, diapers will be central to the growth plans.

In some developing countries, babies typically wear cloth diapers, or sometimes none at all. P&G already sells $9 billion worth of Pampers products around the world; by 2020, that could more than double to $20 billion, executives say.

This year, P&G says, it will install or relocate a diaper manufacturing line every two weeks, on average. From 2007 to 2008, the company installed or relocated as many diaper lines as it did in the previous five years.

P&G's experience selling diapers in China can be seen as a model. Since it started in 1998, the market for disposables has grown from 3 million cases to 70 million, P&G says. Even with that rapid growth, the Chinese still spend well under $1 a day, per person, on P&G-brand diapers, allowing plenty of room for growth.

India, with an economy that's growing by more than 7 percent a year and whose per capita income is expected to double over the next decade, is another vast potential market. P&G sees Indian consumers as having a growing appetite for its goods and the money to afford them.

"The potential for P&G in just this one country is extraordinary," chief financial officer Jon Moeller told analysts recently.

But the strategy faces significant challenges. Simply getting the products into stores can be problematic in countries without an established supply chain, distribution network or even good roads.

Since the car is not the ubiquitous mode of transportation it is in the U.S., stores need to be within walking distance of the shoppers.

In some cases, P&G and other consumer products companies hire salespeople, who travel with backpacks loaded with products and sell them one shop at a time, said Ali Dibadj, a P&G analyst for New York-based Sanford Bernstein.

Then there's the issue of a giant U.S. corporation spreading American-style consumerism into all corners of the globe.

"A multinational corporation can't just waltz into a country, beat up on the competition and take market share," Dibadj said.

P&G tries to position itself as a local company, investing in the economy and hiring local workers.

"When we show up in a country, we don't show up as an American company," McDonald said. "We show up as a local company."

A more basic problem is a lack of income in countries where some subsist on less than a dollar a day. For those potential consumers, P&G has developed small sachets of shampoo or detergent, good for one or two uses and priced within their comfort range, "like an egg or a loaf of bread," said Werner Geissler, vice chairman of global operations.

These mini-products get consumers interested, build loyalty and actually carry profit margins that can be higher than standard-size products, Geissler said.

Products must also be repackaged and reformulated to meet the needs and expectations of low-income, rural populations. The Tide sold in the U.S. is made to be used in washing machines, but the Tide sold in rural Africa will be used largely for hand-washed laundry at basins or in streams, requiring a different chemical formula.

Then there's the retail outlets. There's no Kroger or Wal-Mart in these regions, but P&G plans to push its products into another 3 million stores over the next three years, tallying an additional $2 billion in sales.

As part of its "golden store" program, P&G employees help improve and remodel independent stores in rural areas. P&G overhauls the outside appearance and the inside design of remote stores, and provides software and other expertise to help boost and track sales. Storekeepers are recruited who may start by selling products out of the windows of their homes.

In exchange, logos of P&G brands are prominently displayed outside the stores, products are given preferential shelf space and store owners become ambassadors for P&G products.

In the U.S., P&G would typically rely heavily on TV, radio and print ads to introduce new products. In developing markets, P&G relies on campaigns of public product demonstrations in which the company partners with schools and hospitals to, for example, educate new mothers about Pampers or pre-teen girls about Always feminine-care products.

Neighborhood laundry demonstrations are used to show people who may wash clothes in a nearby river how it can be done with Tide and laundry tubs.