Procter & Gamble(PG) is the largest consumer goods company in the world with sales in excess of $79 billion in 2010. It and competes with Colgate-Palmolive(CL),Unilever Group(UL), Revlon(REV) and L'Oreal. Under its current CEO, Bob McDonald, P&G set out on an ambition goal to acquire one billion new consumers by 2014/15. It should then come as no surprise that P&G has ambitious plans for one of the most populous nations in the world, India.
We value P&G with a $75.25 Trefis price estimate of its stock, which is around a 20% premium to its current market share price. A detailed analysis of P&G's game plan for India only reinforces our outlook and hints at further potential upside to our estimate.
While the Indian economy grew by 8.3% in 2010, the per capita spending on P&G products by the population of over 1.18 billion people was less than $1, still below the Asian average of $3 and well below U.S. at $96. While this offers plenty of scope for an increase given the low GDP per capita for India at $3.4k compared to $8.7k for Asia as a whole, the statistics only further validate P&G's strategy of acquiring more consumers rather than targeting more revenue from the existing consumers. This also is in line with the P&G's outlined growth strategy: Touching and Improving More Consumers' Lives in More Parts of the World More Completely
Entering more product categories
Out of the 38 product categories in which P&G competes globally, only 12 are present in India. On average, P&G has around 19 products on average globally and 14 on average in Asian markets. P&G plans to increase the average number of product categories in which it competes globally to 24.
P&G has launched its Wella hair color, Kolestint, in India in 2010; however, the Indian consumer has yet to enjoy Pringles, Crest, Bounty, Charmin, Febreze, Mr. Clean, SKII, Fusion, Downy and several other billion dollar global P&G brands.
Going forward, we can expect a series of new launches in the Indian market. Now that Ariel and Tide have been in washing machines in India for decades, maybe it's time for Mr. Clean to help scrub the floors and counters of Indian homes!
Expanding in existing product categories
P&G also plans to leverage its brands, which are already established in the Indian market by launching product extensions. P&G staged an elaborate relaunch of its Pantene hair shampoo in 2010 along with introducing hair conditioners. Similarly, Tide Naturals extends P&G leading Tide brand to the middle to low-tier Indian consumers. Likewise, Olay Natural White, extends Olay's anti-aging skin care range to Indian consumers, many of whom have an affinity for whitening cremes and products to lighten one's skin complexion.
Reaching consumers in more remote geographies
The expanding Indian middle class has settled in mostly urban and suburban areas, and so these areas have been the prime focus of consumer goods companies until now. In the coming years, the rural population is where the next billion customers areas will be found and so consumer goods companies need to find ways to reach these customers.
Organized modern retail stores in cities have seen tremendous growth in the last decade, but to succeed in India, the traditional mom-and-pop stores cannot be ignored. Rural India with its limited exposure to consumer credit is primarily the reason for the consumer demand holding up in India during the global economic downturn over 2007-09.
P&G is not only focusing on expanding its distribution network in India and reaching consumers via new distribution channels but it also gains from launching smaller sized product variants which require lower cash outlay. So it's not only Pantene shampoo that is available in sachets in India but also premium Olay skin crèmes!
While P&G's game plan for India does hint at increased media and advertising spending in the short-term, we expect this investment to pay off as P&G furthers its reach in this promising market.
See our full estimates for P&G.